Canada’s unemployment rate rose to 6.8% in December, higher than the expected 6.6%. This is an increase from 6.5% in November, based on data from Statistics Canada. The employment numbers for the month showed a net gain of 8.2K jobs, which was better than the predicted loss of 5K. Average hourly wages increased by 3.7% compared to last year, down slightly from 4% in November. The participation rate also improved, going up to 65.4% from 65.1%. Despite these mixed employment figures, the market showed little reaction, and the USD/CAD exchange rate remained stable.

Labour Market Expectations

The release of the labour market data came with expectations of job losses, predicting 5K layoffs against 53.6K new hires in November. The Bank of Canada (BoC) may consider cutting interest rates if signs of economic slowdown worsen, even though current rates are at 2.25%. As USD/CAD approaches 1.3871, the bullish trend is supported by the 20-day Exponential Moving Average and a 14-day Relative Strength Index of 60. The currency pair is trading near a key 50% Fibonacci retracement level. Labour market conditions can impact currency values because employment levels drive consumer spending and economic growth. Wage growth, an important measure of inflation, is closely monitored by central banks for policy decisions. Looking back at the employment report from December 2024, we noted the unemployment rate rose to 6.8%, indicating a softening labor market in Canada. This trend persisted into 2025, with the latest jobs report for December 2025 showing unemployment has climbed to 7.2%. This ongoing weakness confirms the slowdown that began last year.

Impact on Interest Rates

The persistent labor market issues have directly influenced the Bank of Canada’s policies. Unlike late 2024 when the BoC maintained its key interest rate at 2.25%, there have since been several rate cuts, reducing the rate to 1.75%. Slowing wage growth, which now stands at an annualized rate of 3.1%, gives the central bank little reason to change this approach. Amid this situation, the USD/CAD exchange rate has surpassed the 1.3900 mark discussed in early 2025 and is now hovering around 1.4150. Given the weak Canadian data and the potential for more dovish sentiment from the Bank of Canada during its January 22 meeting, traders might consider bullish strategies for this pair. Buying call options with a strike price around 1.4200 that expire in February offers a defined-risk way to profit from further Canadian dollar weakness. The market expects a cautious message from the central bank, and implied volatility for USD/CAD options is increasing ahead of the meeting. This scenario suggests that strategies like bull call spreads could be effective, helping traders lower the cost of a bullish position. In the coming weeks, we see the most likely direction for USD/CAD as upward, especially if US economic data performs better than Canada’s. Create your live VT Markets account and start trading now.

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