The USD/CAD pair is holding strong around 1.4000, thanks to a rebound in the US Dollar. This growth happened even though the US ISM Manufacturing PMI dropped to 48.2 in November, hinting at a possible Federal Reserve rate cut. During Tuesday’s Asian trading session, the US Dollar Index, which compares the Greenback with six major currencies, remained stable around 99.40. The decline in the Manufacturing PMI was worse than economists expected, signaling ongoing contraction in the US manufacturing sector.

Fed Rate Cut Chance

There’s an 86.5% chance of a 25-basis-point rate cut by the Fed, lowering rates to between 3.50% and 3.75% in December. Attention is now turned to the upcoming US ADP Employment Change and ISM Services PMI data, which could influence the US Dollar’s direction. For the Canadian Dollar, all eyes are on the employment figures set to be released this Friday. Economists predict the Canadian Unemployment Rate will rise to 7%, up from 6.9% in October. PMIs are important economic indicators; numbers above 50 show expansion, while those below 50 indicate contraction. The USD/CAD pair is firming near the crucial 1.4000 level. This stability comes even as the latest US ISM Manufacturing PMI report revealed a ninth consecutive month of contraction at 48.2. Such weak data strengthens our expectation for a Federal Reserve rate cut in December, with a market probability exceeding 85%. This ongoing weakness in the US manufacturing sector reminds us of the 2015-2016 downturn when manufacturing struggled without immediately triggering a recession. Back then, the US Dollar often gained as a safe haven amid global uncertainty, which might explain its strength today. Traders should be careful not to be overly negative on the dollar based solely on manufacturing data; the services PMI due on Wednesday will give a clearer picture of the overall economy.

Canadian Employment Data and Market Impact

On the Canadian side, we’re closely monitoring the upcoming employment data. The unemployment rate is expected to increase to 7.0%, a notable rise from around 6.1% at the start of 2025. This shift, alongside WTI crude oil prices struggling to stay above $75 a barrel for the past quarter, adds pressure on the Canadian Dollar. With major events from both countries this week, we expect significant short-term volatility. Derivative traders might consider strategies that benefit from large price movements, regardless of direction, like buying a weekly straddle. This could prepare them for potential surprises in the US services report or Canadian jobs data on Friday. The main factor will be the monetary policy differences between the two central banks. If Canadian employment data comes in much weaker than expected, it could lead to increased speculation that the Bank of Canada will need to cut rates more aggressively than the Fed in early 2026. In that case, buying long-term USD/CAD call options might be a smart move amid continued Canadian economic weakness. Create your live VT Markets account and start trading now.

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