The Canadian dollar has clawed back some ground against its U.S. counterpart, but one prominent research firm argues the rebound is built on shaky foundations. Rosenberg Research says the loonie's recent bounce—from roughly C$1.42 to C$1.40 per U.S. dollar—may not have much staying power, because Canada's latest labor numbers still look like they're cooling.
For everyday investors, the currency's direction matters beyond just travel budgets. A weaker loonie can lift the value of Canadian exporters' U.S. sales, but it also makes imported goods more expensive and can feed inflation. So the question of whether the bounce holds is more than a curiosity—it's a signal about the health of the Canadian economy.
Two jobs reports, two different stories
Canada publishes two main monthly employment readings, and in May they painted conflicting pictures. The Labor Force Survey, which is based on a household survey, showed a chunky gain of 88,000 jobs. That headline grabbed attention and helped support the currency.
But the other major report—the Survey of Employment, Payrolls and Hours (SEPH)—told a more subdued story. SEPH, which is based on actual payroll records from employers, pointed to a much smaller increase of just 24,000 jobs. Rosenberg Research argues that the payroll-based data didn't really validate the stronger headline, suggesting the labor market is not as robust as the household survey made it appear.
This discrepancy is not unusual—the two surveys measure different things and can diverge month to month. But when they diverge sharply, analysts often look to the payroll data as more reliable because it's drawn from actual hiring decisions rather than household responses.
Cooling signals beneath the surface
Rosenberg Research also focused on the "temperature" of the labor market, not just how many people are employed. The firm highlighted a 2.8% job vacancy rate—meaning the proportion of unfilled positions relative to total jobs—which is a sign that employers are pulling back on hiring. A falling vacancy rate typically indicates that labor demand is softening.
Perhaps more tellingly, salaried hourly earnings dropped by 0.4% in May on a monthly basis. That's a notable decline, because wages are a key indicator of labor market tightness. When wages are rising, it usually means employers are competing for workers; when they fall, it suggests the balance of power is shifting back toward employers.
These soft signals matter for the Bank of Canada. The central bank has been cutting interest rates over the past year to support a sluggish economy, and weaker labor data gives it more room to continue. But lower rates tend to make a currency less attractive to investors, because they reduce the returns on Canadian-dollar-denominated assets.
What it means for the loonie and your portfolio
For the Canadian dollar, the combination of cooling labor market and potential further rate cuts is a headwind. Rosenberg Research's view is that the recent bounce from C$1.42 to C$1.40 may be hard to sustain, meaning the currency could weaken again.
For investors, the implications are mixed. A weaker loonie can be a tailwind for Canadian companies that earn a large share of revenue in U.S. dollars, such as many commodity producers and manufacturers. It can also make Canadian stocks more attractive to foreign investors, because their U.S.-dollar buying power goes further.
On the other hand, a softer currency can push up the cost of imported goods, which could complicate the Bank of Canada's fight against inflation. That could lead to a more cautious approach to rate cuts, which would be a different dynamic for bond investors.
The broader currency market is also in focus, with the U.S. dollar showing strength as traders await key data and the Federal Reserve's next moves. That backdrop makes it harder for any currency, including the loonie, to sustain gains.
What to watch next
Investors will be watching upcoming Canadian data releases, especially the next round of jobs reports, to see whether the labor market continues to cool. If the payroll-based SEPH data remains weak, it would reinforce Rosenberg's caution. Also on the radar are inflation readings, which will influence the Bank of Canada's rate decisions.
For now, the message from Rosenberg Research is clear: don't count on the loonie's bounce to last. The labor market's soft underbelly suggests the currency's recent strength may be more of a temporary reprieve than a lasting trend.
As always, currency moves are just one piece of the puzzle for investors. But understanding the forces behind them—like the health of the job market—can help you make more informed decisions about your portfolio.
