What's Happening?
The Canadian dollar has weakened against the U.S. dollar, trading 0.2% lower at 1.3840 per U.S. dollar, following a surprise decline in Canadian employment figures. The Canadian economy shed 65,500 jobs in August, significantly missing forecasts of a 10,000 increase, and the unemployment rate rose to 7.1%, the highest since May 2016 outside of the pandemic. This has led to increased expectations that the Bank of Canada will resume its easing campaign, with investors seeing a 90% chance of a rate cut at the upcoming policy decision on September 17. The Canadian dollar also posted steeper losses against other Group of 10 currencies, and the price of oil, a major Canadian export, settled 2.5% lower, further impacting the currency.
Why It's Important?
The weakening of the Canadian dollar and the potential for a rate cut by the Bank of Canada could have significant implications for the Canadian economy. A lower interest rate may stimulate economic activity by making borrowing cheaper, but it could also lead to inflationary pressures. The decline in employment figures suggests underlying weaknesses in the Canadian labor market, which could affect consumer spending and economic growth. Additionally, the drop in oil prices could impact Canada's trade balance and economic stability, given its reliance on oil exports.
What's Next?
The Bank of Canada's policy decision on September 17 will be closely watched, as it may confirm or alter the current expectations of a rate cut. Stakeholders, including businesses and investors, will be assessing the potential impacts of monetary policy changes on the economy. The Canadian government may also need to consider fiscal measures to support employment and economic growth if the labor market continues to show signs of weakness.
