The unemployment rate in Canada for September stayed at 7.1%, better than the expected 7.2%. Employment grew by 60.4K, far surpassing the forecast of 5K. The participation rate increased slightly to 65.2%, while yearly wage inflation remained steady at 3.6%. Full-time jobs rose by 106,000, but part-time jobs dropped by 46,000. The Canadian dollar experienced fluctuations, showing different strengths against major currencies. By the end of the day, it fell 0.28% against the USD, trading at 1.3985. It performed best against the British Pound, with percentage changes shown below: – USD: -0.05% – EUR: 0.16% – GBP: -0.20%

Impact of Bank of Canada’s Rate Decisions

In mid-September, the Bank of Canada reduced interest rates by 25 basis points to 2.50%. Analysts now predict a 70% chance of another rate cut by the end of October. Economic indicators like GDP and job reports significantly influence the Canadian dollar’s performance. Strong data raises currency values and might lead to further rate hikes by the Bank of Canada. Today’s surprisingly strong job report challenges the market’s expectations for another rate cut. The addition of 60.4K jobs, mostly full-time, and steady wage growth at 3.6% suggests a more resilient economy. This makes it less likely that the Bank of Canada will reduce its 2.50% policy rate at the meeting on October 29. The derivatives market is already reacting. The odds of an October rate cut, as indicated by Overnight Index Swaps, dropped from around 70% yesterday to below 30% today. This quick shift shows that traders believe the Bank of Canada will keep rates steady. We should now look for trades that benefit from a stable or more aggressive central bank stance. Additionally, the Canadian dollar is strengthened by rising oil prices, with WTI crude recently surpassing $90 per barrel due to updated global demand forecasts. Higher energy prices typically support the loonie, adding to the strong fundamentals reflected in today’s job data.

Opportunities and Market Reactions

This situation contrasts with softer recent data from the U.S., where last week’s ISM services PMI indicated a sharper-than-expected slowdown. The potential policy gap between a cautious Fed and a now-confident Bank of Canada makes selling the USD/CAD pair more appealing. The currency pair’s quick rejection from the 1.4000 level is a key technical sign. For options traders, this sharp movement likely increased short-term implied volatility, creating an opportunity to sell premium. Selling call options on USD/CAD with strike prices above 1.4000 could be a smart strategy, betting that this level will serve as strong resistance. Watch for the pair testing support levels around the 55-day moving average, which is about 1.3822, in the upcoming weeks. Looking ahead, all attention will be on Canada’s next inflation report, expected on October 21. With the last CPI reading for August being a stubborn 2.9%, another strong inflation report would likely confirm that the Bank of Canada will keep rates unchanged. Therefore, positions anticipating Canadian dollar strength should be closely monitored around this crucial release. Create your live VT Markets account and start trading now.

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