Canada’s job market crushed it in December 2024, adding a whopping 91,000 jobs—the best monthly gain in two years. But even with this stellar performance, the Canadian dollar (CAD) isn’t catching a break. Despite strong domestic numbers, several factors are keeping the currency stuck in a rut.
Interest Rates: The Big Gap
One of the biggest reasons for the CAD’s struggles is the difference in interest rates between Canada and the U.S. The Bank of Canada (BoC) slashed its overnight rate by 175 basis points last year, bringing it down to 3.25%. Meanwhile, the U.S. Federal Reserve kept its rates higher, between 4.25% and 4.50%. For investors, higher U.S. rates mean better returns, making the U.S. dollar more attractive and leaving the CAD in the dust.
The U.S. Economy Stays Strong
The U.S. economy continues to flex its muscles, with solid job growth and other strong indicators boosting the U.S. dollar. Even though Canada’s job market is doing great, it’s hard for the CAD to shine when the U.S. economy is stealing the spotlight.
Trade Tensions Add to the Mix
Trade uncertainties aren’t helping either. With the new U.S. administration focusing on “America-first” policies, there’s a chance of more restrictive trade measures. These potential roadblocks are another reason why the CAD is struggling to gain momentum.
What’s Next for the CAD?
Looking ahead, it doesn’t seem like the CAD will turn things around anytime soon. The BoC is expected to cut rates by another 25 basis points at its next meeting in late January 2025. If that happens, the gap between Canadian and U.S. rates will grow even wider, likely keeping the CAD under pressure.
The Bottom Line
Canada’s strong job numbers are impressive, but they’re not enough to boost the Canadian dollar right now. With lower interest rates, a strong U.S. economy, and trade uncertainties hanging over its head, the CAD is facing an uphill battle. Expect the Canadian dollar to get weaker in the short term.
The Canadian dollar is currently trading at 1.4356 CAD against the US Dollar.