Loonie logs steepest weekly slide since late September

What moved the loonie

Canada's currency notched its biggest weekly decline since late September as soft labor data met a firmer U.S. dollar. Friday's 0.8% slide capped a 1.1% loss for the week.

The jobless rate rose to 6.7% in October, and headcount shrank by 4,700, marking a third consecutive month of losses. Meanwhile, strong U.S. payroll figures shored up market bets on a Federal Reserve hike next month, widening the gap between U.S. and Canadian rate expectations.

What strategists are saying

"The Canadian jobs report was clearly negative for the loonie, with weakness in full-time and private-sector employment pointing to a softer underlying labor market," said CIBC's head of FX strategy, Sarah Ying. "With Canadian and US rate expectations moving further apart, we think the risks remain tilted toward a higher USD/CAD from here," which signals a weaker loonie.

TD Securities' Canada rates strategist Emma Lawrence said the report "is likely not enough to strongly weaken the case for a December hike." In her view, "With the BOC proceeding carefully, it would take a buildup of dovish data to build a narrative for a December hold."

Positioning, politics, and policy backdrop

Odds for a December move by the Bank of Canada barely budged Friday, with pricing implying just under a 40% chance of another increase. CFTC data compiled by Bloomberg show leveraged funds were roughly C$8.5 billion net short the currency during the week ended Nov. 3.

The loonie is coming off its biggest monthly advance since April after the BOC shifted toward tighter policy. It also caught a brief boost earlier this week when the greenback wobbled following Democrats' midterm sweep, which stoked fears of a U.S. lawmaker crackdown on the AI industry.

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In a Wednesday note, Macquarie's Thierry Wizman and Gareth Berry said, "We would expect that as the US dials back its data center build-out for politically-driven reasons, Canada's policymakers will make a push to attract them to Canadian soil." They added Canada would "benefit more than others" if a divided U.S. government results in a softer trade stance under President Donald Trump.

What to watch next

Canada's labor market has largely stalled this year as U.S. tariffs keep pressuring parts of the economy. Even so, the BOC delivered its first rate increase in more than three years last week, highlighting inflation risks tied to the Middle East energy shock.

Scotiabank's Shaun Osborne and Eric Theoret pointed to two near term catalysts: the BOC's summary of deliberations from last month's hike and next week's U.S. inflation report. The takeaway could shape how markets handicap both central banks' December decisions. Why it matters: clearer rate paths mean clearer lines for your FX exposure and Canadian rate sensitive holdings.

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