RBC Sees USD/CAD Grinding Lower After a Choppy January Jobs Report

04:25 PM EST, 02/06/2026 (MT Newswires) -- Friday's January jobs report continued the string of strange labour market reports, with a big drop in the participation rate taking the unemployment rate down 0.3 percentage points (pp) to 6.5%, RBC Capital Markets said in its weekly soundbites.

Another big swing, lower this time, in the labor force and participation rate pushed the unemployment rate 0.3pp lower despite a 25,000-job decline.

Choppiness should continue near-term, but RBC said it expects steady improvement in the labor market through 2026. In the medium-term, USD/CAD is still seen grinding lower due to expectations for broad-based USD weakness, the Bank of Canada being on hold for the foreseeable future, and Canadian goods continuing to enter the United States largely duty-free.

One question that has been received recently is about the feasibility of USD/CAD trading back at the 1.40 handle. Markets would need to price in Fed rate hikes and/or U.S. policy uncertainty would need to completely fade to sustainably trade back above 1.40; otherwise, rallies to the year-to-date high of 1.3929 are likely to attract selling interest in USD/CAD, RBC noted.

Next week, focus will be on U.S. data, including January employment and CPI. A weaker than expected labor report is likely to have a bigger impact on market pricing for the Federal Reserve and subsequently the Canadian dollar than a stronger CPI report.

Trades-wise, views are being maintained for CAD/CLP and CAD/NOK lower in the first half of the year.

"Monday's bullish trend reversal confirmed a corrective phase in USD/CAD after valuations reached their most oversold levels since 2024. Resistance is at 1.3728 & 1.3806 as the correction plays out, with support at 1.3629 & 1.3577," said George Davis, chief technical strategist at RBC Capital Markets.

Key things to watch:

This weekend, lower house elections are taking place in Japan. Data wise, next week's attention will be on US data - December retail sales (Tuesday), January NFP (Wednesday), and January CPI (Friday). There will also be Q4 GDP in Norway (Monday), Jan CPI in Norway (Tuesday) and Switzerland (Friday), 'flash' Q4 GDP in the UK (Thursday), and 2Y inflation expectations in New Zealand (Thursday). Additionally, attention will remain on US-Iran developments.

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