USD/CAD is losing strength as the US Dollar faces selling pressure. Weak ADP data raises concerns about the US labor market, impacting the Dollar. Friday’s Canadian jobs report is in focus ahead of the Bank of Canada’s interest rate decision. The Canadian Dollar is rising against the US Dollar, trading around 1.3950. The Greenback is under pressure from a cautious Federal Reserve outlook, nearing a one-month low as bearish trends increase.

ADP National Employment Report

The ADP National Employment Report shows a private-sector job loss of 32,000 in November, missing expectations of a 5,000 job gain. The October figure was revised to a gain of 47,000, up from 42,000. This information is crucial for policymakers, with the November and October Nonfarm Payrolls set to be released on December 16. The US Dollar Index fell to about 98.96, near a one-month low, down approximately 0.40%. Markets are indicating that this data supports a potential Fed rate cut, aligning with recent comments from policymakers about a slowing labor market. The ISM Services PMI released later could bolster easing expectations. In Canada, Q3 Labour Productivity grew by 0.9%, surpassing the 0.4% forecast. All eyes are on Friday’s labor market release, significant before the Bank of Canada’s December rate decision.

US Labor Market Trends

There are clear signs that the US labor market is slowing, with the ADP report showing a surprising drop in private payrolls. This reinforces our prediction that the Federal Reserve will likely cut interest rates at its meeting next week. For derivative traders, focusing on further declines in USD/CAD should be the main strategy in the coming weeks. The weak ADP data isn’t a one-off, as the Challenger, Gray & Christmas report indicated a 15% rise in job cut announcements in November 2025, reaching the highest level in eight months. This trend suggests the upcoming Nonfarm Payrolls report on December 16 could also fall short of expectations. This creates a strong barrier for the US Dollar for the rest of the year. Conversely, we expect the Bank of Canada to be more cautious about cutting rates. Canada’s recent CPI report showed core inflation remains stubborn at 3.1%, well above the BoC’s target. This difference in policy, with the Fed easing while the BoC may stay steady, gives a strong reason for continued strength in the Canadian Dollar against the US Dollar. We have seen similar situations before, notably in late 2023 when markets anticipated aggressive Fed cuts for the following year. During that period, the US Dollar Index dropped nearly 5% in just two months. The current situation resembles that period, suggesting the initial drop could lead to significant declines into early 2026. With a high likelihood of a Fed cut and the upcoming Canadian jobs report, we believe buying January 2026 expiry put options on USD/CAD is a smart strategy. Look for strikes around the 1.3850 level to benefit from a break of the recent lows. This is a defined-risk way to profit from the expected rise in volatility around the Fed and BoC meetings. Create your live VT Markets account and start trading now.

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