TORONTO — Canada’s dollar is heading into Friday’s jobs release holding most of its August gains, with TD Securities arguing Thursday that a persistently resilient labour market has done more to support the loonie than traders betting against it had anticipated.
USD/CAD closed Wednesday at 1.4018, equivalent to 71.3 US cents for the Canadian dollar, after briefly weakening to 1.4068 Monday on risk-off flows tied to Middle East tension. The currency has since recovered as oil prices stabilised and forecasters began pricing in the possibility of a stronger-than-expected Statistics Canada employment print due Friday morning.
The TD Securities note, published Thursday, drew a direct line between Canada’s employment trajectory and the loonie’s relative stability against the dollar. Canada added 18,000 net jobs in June and the unemployment rate held at 6.5 percent, a level the Bank of Canada flagged in its July statement as consistent with modest economic slack rather than serious demand destruction. Economists expect Friday’s July Labour Force Survey to show a net change in the 10,000 to 20,000 range, with the unemployment rate staying flat or edging lower.
The Bank of Canada held its overnight rate at 2.25 percent at its July 15 decision, opting for a second consecutive pause after reducing rates seven times from their 2023 peak of 5 percent. Governor Tiff Macklem cited global uncertainty and the US tariff environment as the primary complicating factors; the bank’s July Monetary Policy Report simultaneously estimated Q2 2026 GDP growth at 2.5 percent, a reading that came in well above economist consensus and gave the bank room to hold without signalling premature easing.
The rate differential between the two North American central banks remains a structural headwind for the loonie. The Bank of Canada’s 2.25 percent benchmark sits more than 300 basis points below the Federal Reserve’s current target, creating a carry trade environment in which institutional investors borrow Canadian dollars and invest the proceeds into higher-yielding US assets, a mechanism that exerts steady downward pressure on CAD regardless of employment data. Bank of Canada research in its July MPR specifically named “rising US yields against relatively flat Canadian yields” as a contributor to continued CAD depreciation, a dynamic with parallels across G10 currency pairs; the yen surrendered nearly half its intervention gains from last week’s US-Japan operation within days, for much the same structural reason.
What TD Securities argues is different in Canada’s case is that the labour market has not amplified the carry pressure. A deteriorating employment picture would give the Bank of Canada reason to accelerate its cutting cycle, widening the rate differential further and making the carry trade more lucrative. Instead, three consecutive months of net job gains through June have kept that exit door closed. The loonie’s 2026 trading range, between 1.38 and 1.41 against the dollar, reflects a currency caught between structural headwinds and a domestic economy that has not confirmed the bearish view.
The tariff picture has been unambiguously disruptive in ways GDP does not always capture. The Gordie Howe International Bridge opened to traffic July 27 after 26 years of political delay, yet within days a Stellantis vehicle carrier had warned its drivers away from the new crossing under threat of discipline. The reason was not bridge safety but compliance uncertainty: new customs bonding procedures at the new port of entry added administrative risk that carriers were not ready to absorb. That kind of friction, invisible in aggregate trade data but visible in the logistics of individual shipments, is where tariff damage shows up first. The Gordie Howe Bridge standoff illustrated in concrete terms why Canada’s automakers, operating across a border now lined with 50 percent duties, cannot simply benefit from a new crossing’s smoother lanes.
The Bank of Canada in its July statement identified the tariff backdrop as the primary source of downside risk to its 2026 forecast. Tiff Macklem joined Kevin Warsh and Christine Lagarde in collectively rejecting forward guidance as a policy tool at the ECB’s Sintra forum in June, and has framed each rate decision since as data-dependent rather than signalling any path in advance. That posture places outsized weight on prints like Friday’s. According to the Bank of Canada’s July 15 rate statement, the next scheduled decision is September 17; the governing council will have seen two additional monthly employment readings before it meets.
Among currency forecasters surveyed in a Reuters poll released this week, the dominant view is that the Canadian dollar will remain rangebound through the remainder of 2026, with CAD trading in a corridor of 70 to 73 US cents. The consensus reflects an economy recovering slowly from tariff shock but not a currency positioned to break meaningfully above the rate differential that suppresses it. TD Securities is not predicting a breakout. What the bank is saying is that Canada’s employment data has made the bear case for the loonie harder to execute, and Friday morning will test how much harder.
The US Bureau of Labor Statistics releases July nonfarm payrolls simultaneously on Friday, adding a second variable to a market already primed for volatility. A weak US number combined with a strong Canadian print would be the most CAD-bullish combination; a strong US print alongside weak Canadian data would hand the dollar a clean run. In the interplay of those two readings, the carry trade’s structural weight will either matter enormously or barely at all, depending on which number lands first.
