US Jobs Miss: Dollar Falls, Canadian Loonie Slides

Quick summary

The U.S. August payrolls print came in far below expectations, driving U.S. Treasury yields down and the dollar broadly softer as markets increased the probability of an earlier Fed rate cut. At the same time, Canada reported a steep loss of jobs in August and a higher unemployment rate, leaving the Canadian dollar (the loonie) weaker than many peers and raising the odds the Bank of Canada will ease sooner than markets previously expected.

What happened (the headlines)

U.S. payrolls: Nonfarm payrolls rose only modestly, well under consensus, and the unemployment rate ticked higher. The immediate market reaction was lower U.S. yields and a weaker dollar across major pairs as traders pushed up expectations for Fed easing.

Canada jobs: Statistics Canada reported a sizable net drop in employment and a noticeable rise in the jobless rate. The loonie underperformed other G10 currencies on the release as traders priced greater odds of a BoC rate reduction.

Market mechanics — why these reports move FX

Interest-rate expectations and bond yields are primary drivers of currency moves. A weaker-than-expected U.S. payrolls figure reduces the chance of the Fed staying tight, which lowers short- and medium-term Treasury yields and generally weakens the dollar. For Canada, a weak domestic jobs report increases the likelihood the BoC will cut, removing support for the loonie and leaving CAD vulnerable, sometimes even when USD is soft.

Implications for major currency pairs

Dollar (USD)

• Short-term: Broad USD softening as markets price in a quicker Fed easing cycle.
• Common pair moves: EUR/USD and GBP/USD tend to rise (EUR and GBP stronger versus USD); USD/JPY typically falls if Treasury yields decline and spike in risk appetite doesn’t push JPY the other way.
• Watch: U.S. 2- and 10-year yields, upcoming Fed communication, and payroll revisions — these will determine whether the dollar’s drop is sustained or a swift correction.

Canadian dollar (CAD)

• Immediate effect: Loonie underperformed after the jobs loss, pushing odds of a BoC cut higher.
• Cross-currency nuance: CAD can be doubly pressured — weaker domestic data and lower oil prices can exacerbate weakness even if USD is broadly soft.
• Watch: BoC commentary, short-term Canadian rates, and oil moves (WTI/Brent) for confirmation of CAD direction.

Trading considerations and risk signals

• Event risk: The Fed and BoC decision calendars (and any intervening central-bank speakers) are the primary short-term catalysts. Trade sizing should reflect the potential for volatile reversals around those events.
• Yield-led moves: Track changes in the U.S. yield curve — a persistent fall in yields will likely keep downward pressure on the dollar.
• Commodity link for CAD: If oil rebounds, it can limit loonie weakness; if oil falls, CAD downside may accelerate.
• Positioning: If the market has become one-sided betting on cuts, look for sharp counter moves on unexpectedly strong data or hawkish central-bank commentary.

Bottom line

Today’s U.S. payrolls miss is the dominant, market‑wide story — it lowered yields and softened the dollar as Fed-cut odds rose. Separately, Canada’s large job loss left the loonie lagging and raised BoC easing expectations. FX traders should watch interest-rate signals, bond yields and oil prices for the next directional clues; to trade the moves successfully, be prepared for volatile, yield-driven crosses and rapid repricing around central-bank communications.