The Canadian Dollar is under pressure at the beginning of 2026, with the USD/CAD rate approaching 1.3900. This situation arises as we anticipate the December labor force survey, which may show potential job losses of 2,500 after some surprising gains in earlier months. In recent months, Canada added jobs: 53,600 in November, 66,600 in October, and 60,400 in September. The Bank of Canada has paused easing, which lowers the chances of further declines for the CAD.

Swaps Curve Projections

The swaps curve shows a 70% chance of a 25 basis point rate hike to 2.50% within the next year. As we start 2026, the Canadian dollar is weak, pushing the USD/CAD pair up toward the important 1.3900 resistance level. This comes right before the crucial December 2025 labor force survey results due today. The market is focused on whether this report will indicate a slowing economy or offer an unexpected positive surprise. The general expectation is for a minor job loss of 2,500, which is a stark contrast to the strong hiring seen in the last quarter of 2025. Since Canadian employment data often surprises analysts—like the significant increase of 53,600 jobs in November 2025 compared to an expectation of just 15,000—we should be ready for potential volatility. A big difference from today’s forecast could easily lead to a quick movement of over 100 pips in either direction.

Opportunity for Traders

For traders, this situation presents an opportunity to prepare for a spike in short-term volatility around the data release. One strategy could be to buy at-the-money straddles or strangles with expirations within the next week to profit from a large price swing, no matter which direction it takes. Implied volatility is expected to increase as we approach the announcement, so acting early is important. Looking beyond today’s numbers, the overall outlook is influenced by the Bank of Canada’s position. The swaps market indicates a 70% likelihood of a rate hike to 2.50% this year, suggesting a hawkish approach. This is further supported by the fact that core inflation in the last quarter of 2025 remained high, averaging 3.2%, putting pressure on the Bank to take action. This hawkish outlook from the BoC should create a support level for the Canadian dollar in the coming weeks. For any significant economic weakness to change this view, it would need to be substantial. For now, it limits how high USD/CAD can rise. Therefore, we consider the 1.3900 to 1.4000 range as a strong resistance zone that has halted rallies several times over the past two years. A smart strategy for the upcoming weeks could be to sell call options with strike prices at or above 1.3950. This reflects the belief that while short-term news might cause spikes, the Bank of Canada’s policy will prevent a sustained rise to new highs. This approach allows for premium collection while managing risk around a clear technical and fundamental level. Create your live VT Markets account and start trading now.

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