Canada’s Labour Force Survey for January shows a drop in employment by 25,000 jobs, which is quite different from the expected rise of 5,000. However, the unemployment rate actually decreased by 0.3 percentage points to 6.5%. This suggests there is less available labor. Wage growth slowed to 3.3%. Although hours worked were mixed, the report does not change the overall view of Canada’s job market. The Bank of Canada (BoC) anticipated a slowdown in hiring, so this report is not likely to influence their decisions very much. Market reactions in terms of interest rates were mild, with only a 1-2 basis point rise. The spreads between Canadian and US rates have not changed much, showing that these job numbers did not significantly shift market opinions. In the currency markets, the US Dollar (USD) is expected to show temporary strength, especially when US data is released. However, the Canadian Dollar (CAD) might do well in the long run as the USD weakens. Still, it may lag behind other currencies like the Euro (EUR), Swedish Krona (SEK), and Australian Dollar (AUD), which are benefiting from strong global growth and positive market sentiment. Looking back at early 2025, we found a mixed jobs report in Canada that didn’t heavily affect the Bank of Canada’s decisions. Employment decreased, but the unemployment rate also fell to 6.5% due to a shrinking labor force. This confirmed our belief at that time that the central bank wouldn’t overreact to one disappointing report. This approach was helpful throughout 2025, as the general weakness of the US Dollar gave a boost to the loonie. However, the gains for the Canadian Dollar were modest compared to other major currencies. The USD/CAD pair gradually declined but struggled to break key support levels for most of that year. Now, in February 2026, things have changed. The Bank of Canada has hinted at a more cautious outlook. The latest jobs report shows the unemployment rate has slightly increased to 6.2%, while inflation has decreased to 2.4%. This creates pressure on the Bank of Canada to think about cutting rates, especially in relation to the US Federal Reserve. This difference in monetary policy is becoming an important factor for the currency pair. The interest rate gap between Canada and the US has grown, with Canada’s overnight rate at 4.0% and the Fed Funds Rate at 4.75%. This makes holding US dollars more appealing than Canadian dollars. For traders dealing in derivatives, this presents a chance to exploit the expected strength of the US Dollar against the Canadian Dollar in the coming weeks. They could think about buying near-term USD/CAD call options to benefit from potential price increases, especially before upcoming US inflation reports. This strategy limits downside risk while allowing for gains in the pair. There is also value in expecting the Canadian Dollar to underperform compared to its commodity-linked counterparts. For example, the Australian Dollar might be better due to higher demand for industrial metals compared to oil. A strategy of selling CAD against AUD could be an effective way to express this outlook without taking on broader risks associated with the US Dollar.

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