Canada’s unemployment rate dropped to 6.5% in November, surprising many analysts. The country added 53.6K jobs, following October’s increase of 66.6K jobs. The participation rate fell slightly from 65.3% to 65.1%, and wages continue to grow at 4.0% annually. The Canadian Dollar rose in value, pushing the USD/CAD exchange rate down to around 1.3900. Compared to major currencies, the Canadian Dollar gained the most against the Japanese Yen. Previously, forecasts predicted a higher unemployment rate of 7% and no job changes from October. Recently, the Bank of Canada reduced interest rates to 2.25% to help support the economy. Analysts don’t expect any more rate cuts soon, and some even suggest a small increase in rates by 2026. The bank’s goal is to stabilize prices using various methods, including interest rate changes and quantitative easing. Interest rates have a big effect on currency strength. Higher rates attract global investment and influence commodities like Gold. The Fed funds rate, a key U.S. monetary policy tool, affects market expectations and is closely watched by financial analysts. The surprising drop in Canada’s unemployment rate to 6.5% changes how we view the economic outlook in the coming weeks. Markets were prepared for a weak labor market, but two months of strong job growth challenge this perspective. This strength makes it unlikely for the Bank of Canada to cut interest rates at their next meeting. We think this strong employment data will keep the Bank of Canada from making further cuts, ending the easing cycle that started earlier in 2025. Core inflation data from October 2025 remains stubbornly high at 3.5%, well above the Bank of Canada’s target. This may lead to discussions about tightening policies in early 2026, reducing hopes for cheaper borrowing costs. For traders, this suggests ongoing pressure on the USD/CAD exchange rate. We’re monitoring the important 200-day moving average around 1.3913. If the rate stays below this level, it would indicate more strength for the Canadian Dollar. Traders might consider buying CAD calls or selling USD/CAD call spreads to target a decline toward the 1.3887 support level. This outlook is supported by the larger economic context, with WTI crude oil prices rising above $85 per barrel in the fourth quarter of 2025. This situation is similar to the rapid policy changes seen in 2022, when strong economic data forced central banks to shift from dovish policies. The current market may be undervaluing the potential for a more aggressive Bank of Canada. In addition to USD/CAD, there are opportunities to strengthen the Canadian Dollar against currencies with more dovish central banks. Given the Bank of Japan’s ongoing supportive measures, selling CAD/JPY put options or taking long positions could provide good value. Current data clearly shows that the Canadian Dollar is performing the best today, especially against the Japanese Yen.

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