Bank of Canada Governor Tiff Macklem called September’s strong labour market report an outlier. This makes sense given earlier weaker numbers, which led to interest rate cuts in October despite rising inflation. However, the October labour market results showed more job growth than expected, with employment numbers rising rather than declining. The unemployment rate fell below 7%, and wages grew more than anticipated, raising doubts about another interest rate cut in December.

Labour Market Volatility

This strong data may not indicate a clear trend change, as the labour market has been unstable since February. Future months could still see job losses that erase recent gains, similar to patterns earlier this year. Currently, market participants backing the CAD can feel optimistic, a rare feeling given its performance this year. The Bank of Canada justified its October rate cut by labeling the strong September job report as an outlier. Yet, the recent October jobs data showed an increase of nearly 80,000 jobs, significantly challenging that viewpoint. This new information has led to a reevaluation of whether the central bank can keep easing its policies. The market has quickly shifted its stance on future rate cuts, presenting an immediate opportunity. Just last month, swaps markets indicated a better than 50% chance of another cut in December; today, those odds have dropped below 20%. Traders should look for positions that benefit from the Bank of Canada needing to maintain rates longer than expected.

Canadian Dollar Volatility

This abrupt conflict between recent central bank actions and new data has likely increased short-term volatility in the Canadian dollar. The current uncertainty suggests that strategies focusing on significant price movements, rather than a specific direction, could be worthwhile. The Canadian dollar has been on a downward trend for most of 2025, and these two reports are the first real challenge to that pattern. It’s important to note the labour market has been unpredictable since US trade tensions rose again in February 2025. In past periods of trade friction, like in 2018, job numbers fluctuated wildly without a clear trend. We may still see a large negative report for November that wipes out these recent gains. Given the risk that this might just be a temporary situation, traders may want to avoid taking on unlimited risk. Using defined-risk strategies, such as buying call spreads on the CAD, could be a smart way to prepare for potential strength as the year ends. This approach offers the chance for gains if the labour market remains strong while limiting losses if this turn proves to be another outlier. Create your live VT Markets account and start trading now.

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