The Canadian Dollar (CAD) rose by almost 0.9% on Friday, marking its second week of gains. Since hitting lows in early November, the CAD has gained nearly 2.2% against the US Dollar (USD). November’s Canadian labor statistics showed better-than-expected job growth. The unemployment rate fell to its lowest point since August 2024, with 53.6K new jobs added, exceeding the expected 5K decline.

Impacts of US Inflation Data

US inflation data for September showed slight improvement, increasing market optimism and strengthening expectations for a third Federal Reserve rate cut in December. The USD weakened broadly, benefiting the CAD, which reached ten-week highs against the USD. The USD/CAD pair has entered bearish territory, with prices now below the 200-day Exponential Moving Average (EMA). Despite technical indicators suggesting oversold conditions, a return to the 1.4000 level is unlikely without a shift in market sentiment. Factors affecting the CAD include Bank of Canada interest rates, oil prices, the country’s economic health, inflation, and trade balance. Canada’s economy is also influenced by the health of the US economy, its main trading partner. With the strong jobs report from November 2025, the CAD appears to have a solid advantage over the USD. The unemployment rate dropped to 6.5%, reversing earlier rising joblessness trends and easing pressure on the Bank of Canada to lower interest rates. This difference in economic strength is crucial for traders to monitor.

Focus on the Federal Reserve’s Next Meeting

The market is closely watching the US Federal Reserve’s meeting set for December 10. With expectations for a third interest rate cut firmly in place, the USD is likely to remain under pressure. This follows the Fed’s shift away from its aggressive rate-hiking policy used until mid-2024. For derivative traders, this may indicate a strategy to position for further declines in the USD/CAD pair. Buying puts on USD/CAD or setting up bearish call spreads could be effective strategies to take advantage of this trend. These approaches would benefit if the pair continues to decline, especially if the Fed hints at more easing. The outlook for a stronger CAD is also supported by stable commodity markets, with Brent crude oil hovering above $85 a barrel. Historically, stable or rising oil prices provide a boost for the Canadian economy and its currency. We’ve observed this trend during past commodity cycles, including the recovery in 2021. However, caution is needed as the USD/CAD pair approaches technically oversold levels. Although the trend is down, a “sell the rumor, buy the fact” response to the Fed’s announcement could trigger a short-term rebound. If the pair fails to break back above the key 1.4000 level, this should be seen as an opportunity to reinforce bearish positions. Create your live VT Markets account and start trading now.

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