Canada Unemployment Rate set to tick higher in February ahead of BoC rate decision

• The Canadian Unemployment Rate is forecast at 6.6% in February.
• Odds for a Bank of Canada rate hike slowly rise amid the Iran war.
• USD/CAD is trapped between opposed forces, and sellers are winning.

Statistics Canada will release its Labour Force Survey on Friday, and market participants expect a modest uptick in job creation in February, with the Employment Change foreseen at 10K following the -24.8K in the previous month. At the same time, the Unemployment Rate is forecast at 6.6%, following the 6.5% posted in January.

Employment data gains relevance ahead of the Canadian Consumer Price Index (CPI) data scheduled for next Monday, and the Bank of Canada (BoC) monetary policy announcement a couple of days later.

The BoC left its benchmark interest rate unchanged at 2.25% for a second consecutive time at its final meeting of 2025, with investors betting that Canadian policymakers would keep rates on hold throughout 2026. That, however, was prior to the Iran war.

The ongoing Middle East crisis has changed the monetary policy perspective for most central banks, including the BoC. After anticipating a modest hike by the end of 2026, market players shifted to betting on more aggressive tightening to keep inflation under control.

And while the Persian Gulf war is taking its toll mostly on energy prices and hence on inflation, employment levels also affect the BoC decision.

What can we expect from the next Canadian Unemployment Rate print?

Market players project a slight rise in Canada’s Unemployment Rate to 6.6% last month, up from 6.5% in January. Additionally, investors forecast the economy will add a few jobs in February, reversing the previous month’s slump. The Participation Rate was confirmed at 65% in January.

The employment report usually has a large impact on the Canadian Dollar (CAD), particularly if the outcome diverges from expectations. The impact tends to be larger when data is released ahead of the BoC decision.

That may not be the case this time, as the market focus remains on the Iran war. Skyrocketing Oil prices have lent unexpected support to the CAD during periods of risk aversion, with the commodity-linked currency refusing to yield to demand for the safe-haven US Dollar (USD).

Another consequence of the war is that market players are changing their central banks’ bets toward interest rate hikes amid mounting fears that higher energy prices will push inflation up. Inflation-related concerns are largely outweighing the labor market situation in shaping central banks’ decisions.

When is the Canada Unemployment Rate released, and how could it affect USD/CAD?

The Canadian monthly employment report is due on Friday at 12:30 GMT. Generally speaking, a stronger-than-anticipated outcome should provide support to the CAD, while dismal readings should weigh on the local currency. A reading that aligns with expectations usually goes unnoticed.

Ahead of the release, the USD/CAD pair trades below the 1.3600 mark, led by opposing forces: on the one hand, the USD is stronger across the FX board due to heightened demand for safety. On the other hand, the CAD benefits from stronger oil prices.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “From a technical point of view, USD/CAD is bearish. The pair recently bottomed in 1.3525, and trades a handful of pips above the level. The daily chart shows it managed to post modest advances in the last couple of days, but selling interest is firm around 1.3600, as the pair has been unable to advance beyond it throughout the week. The same chart shows a flat 20 Simple Moving Average (SMA) hovers around 1.3640, the next resistance level should prompt sellers to give up at around 1.3600.”

Bednarik adds: “The downside seems limited by the 1.3520 area, with a clear break below it exposing the yearly low at 1.3481. An extension below the latter should open the door for a steeper decline, with market participants aiming to test the 1.3400 mark.”