Canadian Dollar May Benefit From U.S., Canadian Jobless Rate Divergence, Says BMO

05:55 AM EST, 12/17/2025 (MT Newswires) -- Arguably, the most notable aspect of the United States jobs data on Tuesday was the two-tick upward lurch in the jobless rate to 4.6%, the highest since 2021, said Bank of Montreal (BMO).

After dipping in June to 4.1%, the rate has risen steadily on average by one tick per month -- not a friendly trend, noted the bank.

Meantime, Canada's jobless rate has suddenly headed in the other direction, dropping by 0.6 percentage point in two months. Accordingly, the gap between the Canadian and U.S. jobless rates at 1.9 percentage points has quickly tumbled from the widest since 2001 to a bit below its long-run average of about two percentage points, stated BMO.

This jobless rate spread acts as a very good leading indicator for the Canadian dollar (CAD or loonie), according to the bank. The theory behind such a relationship would be that as the Canadian economy strengthens, or weakens, relative to the U.S., monetary policy will also tend to be firmer, or looser.

As well, there could be a draw for international capital insofar as an economy's prospects are brightening relative to others.

If the recent relative improvement sticks, it could point to better days ahead for the loonie, added the bank.

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