Canada’s job market gained 8,000 jobs in December, following a strong increase of 181,000 jobs over the previous three months. The unemployment rate rose from 6.5% to 6.8%. This increase was mainly because more people are looking for work, not because of more layoffs. Still, the rate is lower than the 6.9% in October and 7.1% in September. Sectors like manufacturing and transport, which lost jobs in the summer, stabilized by the end of the year. In December, employment in these areas stayed steady compared to the previous month and was up by 22,000 jobs from December 2024.

Labour Market Improvement

The report shows a gradual improvement in Canada’s job market, matching what the Bank of Canada expected. This supports the bank’s plan to keep interest rates steady, with possible increases anticipated for 2027. The recovery continues, but the job market will take time to fully recover. The December 2025 jobs report indicates a slow and uneven recovery, rather than a strong bounce back. This suggests that the Bank of Canada will likely maintain current interest rates through 2026. For traders, this means it may be wiser to sell volatility rather than bet on major market changes. With the Bank’s policy rate steady at 4.50%, the slow softening of the job market gives them little reason to change rates soon. Strategies that benefit from stable short-term rates, like selling strangles on Bankers’ Acceptance futures (BAX), could be effective in capturing premiums as rate-hike fears decrease. The market now sees less than a 20% chance of a rate change before the third quarter, a significant drop from late 2025.

Canadian Dollar and Market Strategies

This stable outlook for interest rates suggests that the Canadian dollar may struggle against the US dollar. The USD/CAD exchange rate has stayed within a tight range between 1.3500 and 1.3750 for weeks, and this report doesn’t change that. This environment is good for range-bound options strategies, such as iron condors, on this currency pair. For the stock market, the report presents a mixed picture. It lowers the immediate risk of a sharp downturn but also limits potential gains for the broader TSX index. The stabilization in manufacturing and transport sectors, which were weak in summer 2025, could create opportunities in industrial-focused derivatives. This is similar to 2023, when cyclical sectors did well during uncertain economic times. The central bank’s top priority remains controlling inflation, and a gradually easing job market supports this aim. December 2025 CPI data shows inflation at 2.8%, still above the 2% target, giving the Bank reason to be patient. This aligns with our belief that any rate hikes are a story for 2027, not the immediate future. Create your live VT Markets account and start trading now.

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