Canada’s Labour Market and Policy Rate

Canada’s strong labour market has kept the Bank of Canada’s policy rate at 2.25%. The unemployment rate fell to 6.9% in October, down from 7.1%, with an impressive addition of 66,600 jobs. Short-term movements in related markets will depend on the final approval of the US funding bill and how the market reacts to upcoming US employment data. If the shutdown is resolved, USD/CAD could stay above 1.4000, but Canada’s strong labour market may limit further increases. Today, the US Dollar performed best against the British Pound. The end of the US government shutdown is temporarily boosting the US dollar, pushing USD/CAD towards 1.4030. However, we view this as a short-term political lift against a larger trend of a dovish Federal Reserve. The key question is whether this rise above the 1.4000 mark can maintain its momentum. It’s important to note that the Fed is likely to consider another rate cut in December, backed by recent data. The latest US Consumer Price Index showed a reading of 2.8%, slightly below expectations, indicating real disinflationary pressures. The market is now focused on the upcoming Non-Farm Payrolls report. If the number comes in below the forecast of 150,000, it could strengthen the case for a rate cut and likely weaken the dollar.

Canada’s Economic Stability

In contrast, Canada’s economy appears more stable, which should help keep the Canadian dollar strong. With the unemployment rate at 6.9% and solid job growth, the Bank of Canada is likely to maintain its position. This different monetary policy creates a significant headwind for USD/CAD, especially as oil prices for Western Canada Select have stabilized around $75 a barrel, further supporting the loonie. We’ve seen similar conditions before, especially when looking back to 2019 from our current perspective in 2025. After the long government shutdown ended in January 2019, the dollar enjoyed some relief, but the Fed’s dovish stance that year was the main takeaway, limiting the currency’s gains. This historical pattern indicates that central bank policies will likely outweigh short-term news. Given the limits on upside potential, the current strength could be a chance to prepare for a move downwards. A bear call spread, where we sell a call option at a higher strike price and buy another at an even higher strike to manage risk, is a good strategy. This approach would benefit if the pair stays below our selected level, declines, or even just moves sideways in the coming weeks. On the other hand, if we’re uncertain about the direction but anticipate a significant move after the US employment data, buying volatility may be a better option. A long strangle, which means buying an out-of-the-money call and an out-of-the-money put, allows us to profit from a sharp move in either direction. This positions us to react to any surprises in the jobs report that could push the pair out of its current stalemate. Create your live VT Markets account and start trading now.

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