Canadian Dollar Faces Weekly Decline Amid Rising Unemployment and Trade Headwinds

The Canadian dollar (CAD) has entered a precarious phase, with its value slipping against the U.S. dollar (USD) amid escalating unemployment and deteriorating trade conditions. Recent data shows Canada’s unemployment rate surged to 6.9% in April _2025, the highest level since January 2017, driven by job losses in manufacturing and trade sectors. This upward trend, paired with heightened U.S. tariff pressures, has fueled a weekly decline in the CAD, with the USD/CAD exchange rate falling by 0.35% from May 1 to May 10, 2025, as investors reassess the economic outlook.

The Unemployment Crisis: A Sectoral Breakdown

The April unemployment spike reflects deepening vulnerabilities in Canada’s export-reliant economy. Job losses were concentrated in:
- Manufacturing (-31,000 jobs): Hit hardest by U.S. tariffs, particularly in Ontario’s automotive sector, where Windsor’s unemployment rate jumped to 10.7%.
- Wholesale and retail trade (-27,000 jobs): Weak consumer demand and supply chain disruptions exacerbated declines.

Meanwhile, temporary gains in sectors like public administration (+37,000 jobs) and finance (+24,000 jobs) masked underlying fragility. Core-aged women (25–54) lost 60,000 jobs, pushing their unemployment rate to 5.8%, while youth unemployment rose to a staggering 15.4%. These trends underscore a labor market in flux, with structural imbalances between export-dependent industries and domestic service sectors.

CAD’s Weekly Decline: Trade and Policy Pressures

The CAD’s 0.35% drop from May 1 to May 10 reflects two intertwined dynamics:
1. Trade-Related Uncertainty: U.S. tariffs on Canadian exports—particularly in manufacturing and digital services—have strained bilateral relations. Ontario’s 7.8% unemployment rate, up from 7.5% in March, highlights the regional economic toll.
2. Monetary Policy Crosscurrents: While the Bank of Canada (BoC) has paused its rate-hiking cycle, markets now price in a 22% chance of a rate cut by June, should inflation remain subdued. Lower interest rates typically weaken currencies, and the CAD is no exception.

The Broader Macroeconomic Picture

• Wage Growth Slows: Average hourly wages rose just 3.4% year-over-year in April, down from 3.6% in March, signaling tepid labor demand.
• Job Insecurity Rises: 13.2% of workers anticipate layoffs within six months, with the figure climbing to 18.6% in U.S.-exposed sectors.

Looking Ahead: Risks and Opportunities

The CAD’s trajectory hinges on three critical factors:
1. Trade Negotiations: A resolution to U.S.-Canada tariff disputes could stabilize manufacturing jobs and limit CAD declines. However, with U.S. tariffs on digital services and films still unresolved, the outlook remains cloudy.
2. BoC Policy: If unemployment breaches 7%, as economists predict, the BoC may cut rates, further depressing CAD demand.
3. Export Diversification: While non-U.S. exports surged 24.8% in March, this resilience has yet to offset U.S. trade headwinds.

Conclusion: CAD’s Fragile Outlook

The Canadian dollar’s weekly decline since May 1 signals a loss of investor confidence in Canada’s ability to navigate trade and labor market challenges. With unemployment at a post-pandemic high and key sectors reeling from U.S. tariffs, the CAD faces sustained pressure unless policymakers achieve breakthroughs on trade or the BoC adopts a more hawkish stance.

The data paints a clear picture:
- A 0.35% drop in USD/CAD from May 1–10, with the rate hitting a low of 1.3663 on May 6.
- 60,000 fewer core-aged women employed in April, amplifying labor market fragility.
- A 13.2% worker anticipation of layoffs, with youth unemployment nearing 16%—levels unseen since 2020.

Investors should brace for further CAD weakness unless trade tensions ease or the BoC surprises with a rate hike. In this climate, the CAD’s decline may persist, underscoring the risks of an economy overly reliant on U.S. demand.