Canadian Dollar underperforms after Canada sheds 68.3K jobs in September

USD/CAD climbed on Friday as the Canadian Dollar weakened sharply following a disappointing domestic employment report. A firm US Dollar provided additional support. At the time of writing, USD/CAD traded around 1.4276, levels last seen in April 2025. Statistics Canada reported that employment fell by 68.3K in September, while economists had expected a gain of 7K. The decline followed a loss of 41.7K jobs in August. The unemployment rate rose to 6.5% from 6.4%, while the labour-force participation rate fell to 64.8%, its lowest level since December 1997 outside the pandemic period. Growing labour-market slack and underlying inflation near the Bank of Canada's 2% target limit the scope for policymakers to raise interest rates. Canadian government bond yields fell after the release, with the two-year yield dropping more than 8 basis points to around 3.199%. The US Dollar remained firmly bid near an 18-month high as markets expected the Federal Reserve to raise interest rates again before the end of the year. The US Dollar Index traded around 102.30 after recovering from an intraday low of 101.92. Elevated US Treasury yields provided additional support. The two-year US Treasury yield held near 4.797%, roughly 160 basis points above its Canadian counterpart. The wide yield gap remained a major headwind for the Canadian Dollar, outweighing support from higher Oil prices linked to Middle East supply risks. Recent Fed commentary also remained hawkish. St. Louis Fed President Alberto Musalem said, "To bring inflation back to target, more monetary policy firming will be required." Fed Governor Christopher Waller struck a similar tone, signalling "additional hikes" if economic data develop as expected. Attention now turns to the preliminary University of Michigan Consumer Sentiment Index for October, alongside 1-year and 5-year inflation expectations.