The Canadian dollar will find tough resistance on any gains towards the parity level.

The Canadian dollar found support weaker than the 1.01 level against the dollar on Friday ahead of the employment data, but then weakened sharply with lows around 1.0220. There was a December drop in employment of close to 15,000 which undermined sentiment towards the Canadian dollar, especially as there was evidence that US-sensitive areas were being damaged.

The weak employment data will reinforce expectations over further Bank of Canada interest rate cuts, especially as the currency is still very strong in historic terms. The Canadian currency will gain some support from the record level of gold prices, but sentiment will remain generally fragile on domestic and US economic fears. There is the potential for near-term support close to the 1.0220 level against the US dollar, but recoveries will be limited.