The unemployment rate in Canada rose to 6.8% in December, up from 6.5% in November. This was higher than the expected 6.6%, according to Statistics Canada. In December, Canada added a net total of 8,200 jobs, which was a surprise compared to the expected loss of 5,000 jobs. Average hourly wages increased by 3.7% compared to last year, down from 4% in November. The participation rate also improved, going from 65.1% to 65.4%. Despite these changes, market reactions were minimal, with the USD/CAD holding steady at 1.3868.

Labour Force Expectations

These figures come amid expectations of a shrinking labor force and a potential rise in unemployment to 6.6%. This situation could impact the Canadian Dollar and may influence the Bank of Canada’s interest rate decisions. USD/CAD is currently on an upward trend, nearing a 50% Fibonacci retracement level. The 14-day RSI suggests strong momentum. If it closes above 1.3894, the pair could climb higher. However, failing to surpass this level may result in a pullback. Conditions in the labor market, such as job availability and wage growth, are essential for currency values. They affect consumer spending and inflation, which in turn influence monetary policy decisions by central banks. Impact on Canadian Economy In last month’s Canadian employment report, we saw an unexpected increase in the unemployment rate to 6.8% for December 2025. Although job creation was slightly positive, the rise in unemployment and a slowdown in wage growth to 3.7% indicated a weakening labor market. This initially caused little concern but made investors cautious about the Canadian economy. Recent data shows that Canada’s core CPI for December 2025 dropped to 2.4%, the lowest in over two years. This decrease in inflation, combined with a weaker job market, suggests that the Bank of Canada may need to cut its interest rate from 2.25% sooner than expected. The market now sees more than a 60% chance of a rate cut by the end of the first quarter. For derivatives traders, this situation makes strategies that profit from a weaker Canadian dollar and higher volatility more attractive. The implied volatility on USD/CAD options, set to expire around the next Bank of Canada meetings, seems relatively inexpensive given the increasing chance of a policy change. Historically, the period leading up to the first rate cut in a cycle, like in the U.S. in 2019, often triggers significant currency fluctuations that the options market hasn’t fully accounted for. With USD/CAD moving past the 1.3894 resistance level and closer to 1.3930, speculative buying becomes enticing. Purchasing moderately out-of-the-money USD/CAD call options is a cost-effective way to bet on a continued rise toward 1.4000. This method offers the chance for gains if the Bank of Canada surprise dovishly while clearly defining the maximum potential loss on the trade. Create your live VT Markets account and start trading now.

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