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Published on 19 September 2025•6 minutes

What weaker labor market data means for the Canadian dollar's outlook

Airwallex Editorial Team

What weaker labor market data means for the Canadian dollar's outlook

The Canadian dollar faces mounting pressure as labor market indicators signal economic softening ahead. With the Bank of Canada delivering an outsized 50-basis-point interest rate cut and the loonie already breaking below 72 cents, businesses operating across borders need to understand how these shifts will impact their financial operations ¹. The convergence of domestic economic challenges and global market volatility creates a complex environment for Canadian companies managing international transactions.

Understanding the current labor market weakness

Canada's economic landscape shows clear signs of deceleration. According to recent analysis, Canada may see early gains from lower interest rates, but slowing immigration and U.S. tariffs could cap growth at around 1.5% by 2026 ². This projection reflects broader concerns about the country's economic momentum as traditional growth drivers lose steam.

The labor market's softening connects directly to currency movements. Since 2020, Canadian home prices and wages have both risen by over 30%, creating a complex economic picture where nominal gains mask underlying weakness ¹. These statistics reveal how inflation has eroded purchasing power even as headline numbers appear robust.

Employment data increasingly influences monetary policy decisions. The Bank of Canada's recent aggressive rate cuts signal concern about economic conditions, with variable rate mortgage holders already experiencing some rate relief due to 125 basis points in interest rate cuts ¹. For businesses managing cross-border payments, these policy shifts create both opportunities and challenges.

The Canadian dollar's technical breakdown

The loonie has already broken below a technical threshold by dipping below 72 cents, marking a significant psychological and technical level for currency traders ¹. This breakdown reflects broader concerns about Canada's economic trajectory relative to its trading partners.

Global factors compound domestic pressures on the Canadian dollar. The global economy in 2025 is expected to grow by approximately 3% despite challenges such as shifting U.S. trade policies, structural issues in China, and slow growth in the eurozone ². These international dynamics directly impact Canada's export-dependent economy.

U.S. economic policy creates additional headwinds. New tariffs include a 20% tariff on China and 25% punitive tariffs on steel and aluminum, reshaping North American trade flows ³. Previously delayed tariff policies will be enacted on April 2, including reciprocal tariffs and a 25% tariff on goods from Canada and Mexico ³.

Impact on cross-border business operations

Canadian businesses face immediate challenges from currency volatility. The Canada payments market size reached 22.8 Billion Transactions in 2024, with IMARC Group expecting it to reach 38.7 Billion Transactions by 2033, exhibiting a growth rate (CAGR) of 5.6% during 2025-2033 ⁴. This growth occurs against a backdrop of currency uncertainty that affects transaction costs.

International transfers are expected to increase five percent per year until 2027, highlighting the growing importance of efficient cross-border payment solutions ⁵. Companies need sophisticated tools to manage currency risk while maintaining operational efficiency.

The rise of digital commerce amplifies currency concerns. In 2022, there were around 27 million eCommerce users in Canada, accounting for 75% of the Canadian population, with cross-border transactions increasing as Canadian firms sell their goods and services to buyers worldwide ⁴. These businesses face direct exposure to exchange rate fluctuations that can significantly impact profitability.

Managing currency risk in uncertain times

Businesses require robust strategies to navigate currency volatility. According to data analytics company LexisNexis, up to 50% of payments that don't complete or are delayed are due to simple data entry problems, but currency fluctuations add another layer of complexity ⁵. Companies must address both operational and financial risks simultaneously.

Multi-currency accounts provide essential flexibility. Airwallex offers multi-currency accounts that allow businesses to receive funds in various currencies, helping companies manage exposure to currency fluctuations ⁶. This capability becomes increasingly valuable as the Canadian dollar weakens against major trading currencies.

Payment timing strategies matter more during volatile periods. Globally, 84% of payments are now either direct payments or they have one intermediary, with 89% of payments flowing through the Swift network arriving at the destination bank within an hour ⁵. Faster payment processing allows businesses to capitalize on favorable exchange rates when they occur.

Technology solutions for currency management

Digital payment infrastructure evolves rapidly to address currency challenges. Real-time payments (RTPs) are expected to generate $173 billion in additional economic output by 2026, according to the Center for Economic and Business Research ⁵. These systems enable businesses to respond quickly to currency movements.

Automation reduces operational complexity. Online shoppers are increasingly using alternative payment methods including digital wallets, buy now pay later services, and bank transfers, requiring businesses to manage multiple currency exposures simultaneously ⁴. Airwallex provides automated accounts payable management that streamlines multi-currency operations ⁷.

Integration capabilities enhance efficiency. Airwallex offers integrations with eCommerce platforms, allowing businesses to manage currency exposure directly within their existing workflows ⁸. This seamless integration becomes crucial as businesses scale internationally.

Global market dynamics affecting the Canadian dollar

International capital flows reshape currency markets. Capital is rotating away from U.S. stocks due to the impact of new tariffs on U.S. corporate supply chains and a cautious stance from the Federal Reserve, affecting global currency dynamics ³. These shifts influence the relative strength of the Canadian dollar.

Emerging market developments impact commodity currencies. Markets in Germany, France, and the UK have gained momentum due to a manufacturing revival, while the broader Asian market struggles ³. Canada's resource-based economy feels these global shifts acutely.

Central bank policies diverge globally. In the U.S., inflation driven by tariffs may peak at 3% before moderating in 2026, prompting the U.S. Federal Reserve Board to adopt a measured stance, with rates likely ending the year between 3.50% and 3.75% ². This divergence from Canadian monetary policy creates additional pressure on the loonie.

Sector-specific impacts of currency weakness

Financial technology companies face unique challenges. Fintech companies like Robinhood and Affirm have been affected by President Trump's tariffs, with shares in Affirm down more than 21% and Robinhood down more than 17% since April 2 ⁹. These impacts ripple through the broader financial services ecosystem.

E-commerce businesses navigate complex currency dynamics. The expansion of online payments in Canada is facilitated by the growing use of digital wallets, with 78% of Canadians using the internet to conduct online banking in 2022 ⁴. Currency fluctuations directly impact cross-border e-commerce profitability.

Travel and hospitality sectors require specialized solutions. Airwallex helps travel companies save on cross-border payments through optimized currency conversion and reduced transaction costs ¹⁰. These savings become more critical as currency volatility increases operational costs.

Future outlook and strategic considerations

Economic projections suggest continued volatility. Non-U.S. equities may underperform, particularly in Europe and Canada, due to weaker economic conditions, while commodity markets are likely to face headwinds from slowing global demand ². These trends will continue pressuring the Canadian dollar.

Policy responses may provide limited relief. Interest rates are expected to fall further in 2025, but central banks will likely approach monetary easing cautiously ². Canadian businesses must prepare for an extended period of currency weakness.

Technological advancement offers opportunities. Around 90% of central banks globally are currently working on developing a Central Bank Digital Currency, potentially reshaping international payment systems ⁵. These developments could fundamentally alter how businesses manage currency risk.

Building resilience through financial infrastructure

Comprehensive payment solutions become essential. Airwallex provides high-speed international transfers that help businesses respond quickly to market conditions ¹¹. Speed and flexibility in payment processing allow companies to minimize currency exposure.

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Multi-currency capabilities provide operational advantages. Companies like McLaren Racing have modernized cross-border payments with Airwallex, demonstrating how sophisticated financial infrastructure supports global operations ¹². These capabilities become more valuable as currency volatility increases.

Integrated financial management streamlines operations. RYSE transformed complex cross-border finances into streamlined, cost-saving, and efficient global operations with Airwallex, showing how comprehensive solutions address multiple challenges simultaneously ¹³. This integration becomes crucial for maintaining competitiveness during currency weakness.

Conclusion

The Canadian dollar's weakness reflects broader economic challenges that will persist through 2025 and beyond. With growth potentially capped at 1.5% by 2026 and the loonie trading below 72 cents, businesses must adapt their financial strategies ² ¹. The combination of domestic labor market weakness and global economic uncertainty creates a challenging environment for Canadian companies.

Successful navigation of this environment requires sophisticated financial infrastructure. As international transfers continue growing at 5% annually and the Canada payments market expands toward 38.7 billion transactions by 2033, businesses need robust solutions for managing currency risk ⁵ ⁴.

Airwallex offers comprehensive solutions designed for this challenging environment. With multi-currency accounts, high-speed international transfers, and automated payment management, Airwallex helps Canadian businesses maintain operational efficiency despite currency volatility. Learn how Airwallex can help your business navigate the weakening Canadian dollar and optimize your cross-border operations today.

FAQ

How does weaker labor market data affect the Canadian dollar's value?

Weaker labor market data typically leads to a decline in the Canadian dollar as it signals economic softening and may prompt the Bank of Canada to cut interest rates. Lower interest rates make the currency less attractive to investors, reducing demand and weakening the CAD against other major currencies like the USD.

What impact does the Bank of Canada's 50-basis-point rate cut have on businesses?

The outsized 50-basis-point rate cut by the Bank of Canada puts downward pressure on the Canadian dollar, making imports more expensive for Canadian businesses while making Canadian exports more competitive internationally. This creates both challenges and opportunities depending on a company's business model and cross-border payment needs.

How can businesses protect themselves from Canadian dollar volatility?

Businesses can protect against CAD volatility through currency hedging strategies, diversifying payment methods, and using modern financial infrastructure that offers competitive exchange rates and lower fees. Companies should also consider timing their cross-border transactions strategically and maintaining multi-currency accounts to reduce conversion costs.

What does the CAD breaking below 72 cents mean for cross-border payments?

When the Canadian dollar breaks below 72 cents against the US dollar, it means Canadian businesses pay more for US-denominated goods and services, while US companies get better value when purchasing from Canadian suppliers. This exchange rate level significantly impacts the cost structure of cross-border transactions and requires careful financial planning.

How can Canadian businesses navigate expansion challenges amid currency weakness?

Canadian businesses expanding internationally should leverage modern payment solutions that offer transparent pricing and efficient cross-border capabilities. According to business expansion guides, companies need robust financial infrastructure to manage currency risks, optimize cash flow, and maintain competitive pricing despite exchange rate fluctuations.

What role does global economic uncertainty play in CAD outlook for 2025?

Global economic uncertainty, including shifting US trade policies and slower growth in major economies, creates additional pressure on the Canadian dollar. With global growth expected at approximately 3% in 2025 and potential tariff impacts on trade flows, the CAD faces headwinds that businesses must factor into their international payment strategies.

Citations

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Airwallex Editorial Team

Airwallex’s Editorial Team is a global collective of business finance and fintech writers based in Australia, Asia, North America, and Europe. With deep expertise spanning finance, technology, payments, startups, and SMEs, the team collaborates closely with experts, including the Airwallex Product team and industry leaders to produce this content.

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