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The Canadian dollar has lagged G10 peers over the past week, slipping by about half a per cent against the U.S. dollar, euro and pound.
Scotiabank says the CAD is a “mild underperformer on the session” as falling oil prices, wider Canada–U.S. rate spreads, and equity market volatility have shifted momentum against the currency.
The underperformance comes ahead of Friday's Canadian labour market report, which could set the tone for the remainder of September.
"Factors have shifted a little against the CAD so far this week," says Scotiabank's Chief FX Strategist Shaun Osborne, noting weaker crude prices and widening front-end spreads.
"Crude prices are lower on concerns that OPEC+ might boost supply and short-term US/Canada spreads have widened somewhat from last week’s low, although the broader trend in narrowing remains intact," he says.
Oil came under pressure on Wednesday, losing more than 2% on reports by Bloomberg that OPEC+ plans to raise quotas again at its next meeting. Last month, the cartel removed all additional self-imposed restrictions that major producers such as Saudi Arabia, Russia, and Kazakhstan had taken on.
"This new move is an open demonstration of the fight for market share, rather than an attempt to support prices. First and foremost, it is a fight against the US, which is actively promoting its energy through policy, imposing sanctions on oil-producing countries and including oil and gas purchases in trade deals," says Alex Kuptsikevich, chief market analyst at FXPro.
"If the reduction is indeed confirmed, it promises to be an impressive factor of pressure on quotations, overturning the upward price trend of the previous couple of weeks," he adds.
Above: GBP/CAD performance on a one-week basis.
The Canadian Dollar is at times highly sensitive to oil prices as Canada is a major oil exporter, with earnings helping to underpin foreign exchange earnings required to support the domestic currency.
Relative performance charts confirm the softness, with CAD down −0.52% versus USD, −0.17% versus EUR, and −0.24% versus GBP over the past five trading days.
The pound’s midweek recovery leaves GBP/CAD slightly stronger on the 5-day timeframe, while EUR/CAD and USD/CAD have also nudged higher into the end of the week.
Attention now turns to Canada’s August labour market data due Friday, with economists polled by Reuters expecting employment to rise by around 15,000 and the unemployment rate to hold near 6.2%.
A stronger print would ease pressure on the Bank of Canada to cut rates further, potentially offering CAD support.
However, a weaker report would reinforce Scotiabank’s warning that spreads and softer commodity prices are tilting risks against the currency.
On the technical front, Scotiabank describes USD/CAD as “neutral/bullish,” with resistance at 1.3815 and support at 1.3725–1.3770, suggesting room for further upside if U.S. data surprises higher.
With oil struggling and U.S. data in focus, the Canadian dollar enters the jobs report on the defensive, vulnerable to both domestic weakness and global macro shifts.