The Canadian dollar strengthened toward 1.356 per US dollar, approaching its highest level in 16 months, last seen on January 29. The move was driven by resilient domestic labor market conditions, solid commodity prices, and a recalibration of monetary policy expectations, all of which reduced downside risks and drew renewed foreign capital inflows.
January labor data showed the unemployment rate falling to 6.5%, its lowest since September 2024. Gains in full-time employment and wage growth of around 3.3% weakened the case for near-term easing by the Bank of Canada and helped keep Canadian real yields comparatively attractive.
At the same time, broad-based US dollar weakness followed softer US labor indicators and reports that Chinese regulators had urged banks to limit their exposure to US Treasuries. These developments weighed on the DXY index and reduced external pressure on the loonie.
In addition, rising oil prices provided further support to the Canadian dollar by improving Canada’s terms of trade and boosting export revenues.
