USD/CAD is trading close to its lowest point since late September, following strong job data from Canada. Traders think the Bank of Canada (BoC) will keep interest rates steady on Wednesday, based on recent data. The Canadian Dollar is slightly rising against the US Dollar as the market reacts to different expectations for the BoC and the Federal Reserve (Fed). Currently, USD/CAD is at 1.3807, its lowest since September 22, after a 0.95% drop last Friday. At this week’s policy meeting, the BoC is likely to maintain its interest rate at 2.25%. Economic signals indicate a stable approach is best. Canada’s job market looks strong, with 53,600 new jobs added in November, exceeding predictions. The unemployment rate dropped from 6.9% to 6.5%. Inflation figures are mixed. The Consumer Price Index (CPI) fell to 2.2% year-over-year in October, slightly higher than the 2.1% expected. The GDP grew by 0.6% in the third quarter, recovering from a 0.5% decline in the second quarter. In the US, the Fed is on the verge of an interest rate decision, with an 87% chance of a 25 basis point cut. The Canadian Dollar remains strong due to differing policies as we approach these central bank announcements. As of December 8, 2025, there is a clear distinction between the Bank of Canada and the Federal Reserve. This gap is a major factor behind the recent strength of the Canadian Dollar. Traders should be ready for significant movements around the central bank decisions this Wednesday. The Canadian economy shows resilience, supporting our view that the BoC will keep its rate at 2.25%. The latest data from Statistics Canada indicates 53,600 job additions in November, lowering the unemployment rate to 6.5%. This robust labor market, alongside steady core inflation at 2.9%, gives the BoC little reason to change its policy at this time. On the other hand, the case for a US Federal Reserve rate cut is gaining traction. Recent figures show US Core PCE, which the Fed favors as an inflation measure, has dropped to 2.7% year-over-year, continuing a downward trend seen throughout 2025. Mixed labor data has raised the likelihood of a rate cut this week to about 87%, per the CME FedWatch Tool. For derivative traders, this trend suggests that USD/CAD may continue to drop. Buying put options on USD/CAD can provide a simple way to benefit from downside movement while limiting risk ahead of Wednesday’s decisions. Traders should consider strike prices below the current 1.3800 level, possibly aiming for the lows from the third quarter. With the upcoming events, implied volatility may be higher, offering additional opportunities. For those who think the drop is already reflected in the price, selling out-of-the-money call spreads on USD/CAD could be a good strategy for earning premium. This position is advantageous if the pair decreases, stays the same, or only rises slightly. History can guide us in understanding how these policy differences influence the market. In 2023, the BoC paused its rate increases much earlier than the Fed, showing that policy divergence can be a powerful driver for currency pairs. This can lead to trends that last several months.

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