What’s going on here?
The Canadian dollar fell by 0.6% against the US dollar, trading at 1.3750 CAD/USD – its weakest level since early May.
What does this mean?
A stronger-than-expected US jobs report gave the greenback a boost, while mixed signals from Canada’s job market created
volatility
for the CAD. The US economy added more jobs than anticipated in May, with annual wage growth reaccelerating. This development lessened the odds of Federal Reserve rate cuts in September. In contrast, Canada’s jobless rate hit a two-year high at 6.2%, despite wage growth ticking higher. These diverging trends made it difficult for investors to gauge the Bank of Canada’s next move, reflected in a decreased 46% chance of a rate cut in July.
Why should I care?
For markets: A tale of two economies.
The US dollar’s rally and higher yields hit the CAD hard. Canadian
bond
yields rose, but not as sharply as their US counterparts. The 10-year Canadian bond yield increased 6.4 basis points to 3.458%, widening the spread between US and Canadian 10-year bonds to 95.4 basis points – the largest gap since 1994. Investors should keep an eye on these spreads as they reflect ongoing economic divergences.
The bigger picture: Reading between the lines.
Stronger US jobs data suggest resilience in the US economy, delaying Fed’s potential rate cuts. In contrast, Canada’s job market paints a mixed picture, posing challenges for the Bank of Canada. Navigating these conflicting signals will be crucial for policymakers and investors alike. As the US and Canada’s economic paths diverge, the resulting market dynamics will shape investment strategies across borders.