Canada published significantly weaker labor market data than the market expected. In September, the number of employed fell by 68.3 thousand. The consensus had assumed growth of about 7 thousand. A month earlier, employment had already declined by 41.7 thousand, so the September report became the second weak result in a row.
What the employment figures showed
The data were published on October 9. The actual change in the number of employed was -68.3 thousand. A gain of 7 thousand had been expected. Thus, the difference between the actual and forecast figures was more than 75 thousand jobs. This intensified concerns about the state of the Canadian labor market.
What happened with unemployment
The unemployment rate rose to 6.5% from 6.4% previously. At the same time, the labor force participation rate fell to 64.8%. This is the lowest level since December 1997, excluding the pandemic period. A decline in participation means that a smaller share of the adult population is working or actively looking for work.
Why the Canadian dollar weakened sharply
The main reaction came through the bond market. The yield on two-year Canadian government securities fell by more than 8 basis points, to 3.199%. For comparison, the yield on two-year U.S. Treasuries is holding around 4.797%. The difference is about 160 basis points in favor of the United States. The higher the yield on U.S. assets relative to Canadian ones, the more support the U.S. dollar receives against the Canadian dollar.
What happened with USD/CAD
Against the backdrop of the weak report, USD/CAD rose to 1.4276. The pair returned to levels the market saw in spring 2025. The move was driven not only by weakness in the Canadian dollar, but also by the continued U.S. yield advantage.
What is happening with the U.S. dollar
The DXY index is holding around 102.30. During the day it managed to fall to about 101.92, after which it recovered. The dollar continues to be supported by expectations of a tighter Fed policy.
What the Fed says
Fed officials continue to allow for additional policy tightening. The market perceives such comments as a signal that U.S. rates may remain high for longer. For USD/CAD this is especially important, since at the same time the probability of a softer policy from the Bank of Canada is increasing.
What next
Now the main question for the pair is how the Bank of Canada will react to two weak employment reports in a row. If the market begins to price in a softer monetary policy in Canada, pressure on the Canadian dollar may persist. For USD/CAD, the key factors remain the yield gap, expectations regarding the Bank of Canada, and new data from the United States.
Did you see this surge in USD/CAD?
A discrepancy between the report and the forecast of more than 75 thousand jobs can quickly change the movement of the currency pair. But the outcome of a trade depends not only on direction, but also on the available trading nominal. In prop trading, a trader passes an evaluation according to the company's rules and gains access to a large trading account without needing to use comparable personal capital. Labor market reports are released regularly, so it is better to understand the mechanics in advance.