Canadian currency stays weak as oil prices drop and job growth slows

The Canadian dollar held steady against the US dollar on Monday but lagged behind most major currencies as crude prices declined. The loonie traded at 1.4135 per US dollar, or 70.75 US cents, staying close to an 18-day low of 1.4137 reached on Friday. Only the Canadian currency and the Swiss franc failed to make gains against the greenback among Group of 10 currencies. This happened as worries about the Middle East conflict eased, pushing investors back into risk assets following a drop in artificial intelligence stocks last week.

Employment and Rates

Recent reports on Friday showed that Canadian employment dropped for the third month in a row during October, pushing the jobless rate up to a six-month high of 6.7%. At the same time, separate figures showed that US job growth is speeding up. Experts at TD Securities, including Jayati Bharadwaj, noted that these opposite job trends will likely keep the US dollar supported above 1.40 against the Canadian dollar. The rising jobless rate and slower wage growth in Canada also mean investors now see only a 40% chance of a Bank of Canada rate hike in December, compared to an 84% chance for the US Federal Reserve. Meanwhile, the central bank in Canada is set to release minutes from its October policy meeting on Tuesday.

Oil and Bonds

Crude oil prices went down after US President Donald Trump played down the chances of new attacks on Iran. US crude oil futures dropped by 3.5% to $87.64 a barrel. Oil is a major export for Canada, so lower prices directly affect its currency. Canadian government bond yields moved in mixed directions, with the 10-year yield dropping about half a basis point to 3.653% after hitting a three-month low during Friday's trading session.

Context

Exchange rates are heavily influenced by commodity prices like oil and the monetary policies of central banks. When a country faces rising unemployment and slowing wage growth, its central bank is less likely to raise interest rates to cool the economy. Investors closely watch these economic indicators to decide where to put their money, which causes currencies to rise or fall against each other.