The Canadian Dollar (CAD) is gaining against the US Dollar (USD) thanks to positive employment data, ending a three-day slump. The USD/CAD pair is trading near 1.3990, down 0.20% from Thursday’s high of 1.4030, following the release of Canada’s September Labour Force Survey. According to Statistics Canada, employment increased by 60.4K in September, well above the expected 5K and offsetting a decline of 65.5K in August. The unemployment rate remains steady at 7.1%, despite predictions it would increase to 7.2%. Average Hourly Wages are also holding at a 3.6% growth rate year-over-year.

Bank of Canada’s Dilemma

The improved job market reduces pressure on the Bank of Canada (BoC) to cut rates. Investors now see only a 57% chance of a rate cut in October, down from 72% before the data was released, though a 25-basis-point cut is still expected by the end of the year. West Texas Intermediate (WTI) Crude Oil prices have dropped below $60.00, reaching a four-month low with a drop of over 2%. This decline could hinder the Loonie’s rise, given Canada’s role as a major oil exporter. The Loonie is also getting support from a weakening US Dollar Index (DXY), which is hovering around 99.35. Even though it is close to two-month highs, the index is on track for its biggest weekly gain this year. Today’s strong employment figures in Canada are causing a short-term dip in USD/CAD, which is near 1.3990. This data has pushed back expectations for an immediate rate cut by the Bank of Canada this month. This temporary strength in the Loonie is an intriguing puzzle.

Market Strategies Amid Conflicting Signals

It’s essential to be cautious, as the latest inflation report for September 2025 shows core CPI stuck at 3.1%, slightly above the BoC’s target range. This suggests that the BoC may hesitate to cut rates, though worries about global growth persist. The market is still anticipating a full 25-basis-point rate cut by the end of the year for a reason. In late 2023 and 2024, the BoC prioritized fighting inflation over reacting to individual data points. A similar trend might be occurring now, where this positive jobs report is seen as an outlier rather than a new trend. This could mean that the Loonie’s current strength may not continue. A major hurdle for the Loonie is the price of oil. With WTI crude now below $60 a barrel and the U.S. Energy Information Administration reporting an unexpected build of over 3 million barrels in crude inventories last week, demand appears weak. As a leading oil exporter, falling crude prices are a direct blow to Canada’s trade and the Loonie’s value. Meanwhile, the US dollar remains robust, with the DXY index near two-month highs. Strong retail sales figures in the U.S. bolster the belief that the Federal Reserve will stay hawkish compared to other central banks. This fundamental gap will likely support the USD/CAD pair against any downturn. Given these mixed signals, there’s an opportunity in options to position for a bounce in USD/CAD. Buying call options with a strike price around 1.4050 for the coming weeks could be a cost-effective way to profit if weak oil prices and a strong dollar outweigh the employment data. The risk is limited to the premium spent on the option. Alternatively, for those anticipating a significant price movement but uncertain of the direction, a long strangle could be a good strategy. This involves buying both an out-of-the-money call option and an out-of-the-money put option. This approach would benefit from a sharp move in either direction as the market decides which factors are more influential. Create your live VT Markets account and start trading now.

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