The USD/CAD pair has dipped to around 1.4100 after reaching a recent peak of 1.4140. This decline comes after the US dollar gained strength due to worries about an AI bubble impacting tech stocks and Wall Street indexes. In Canada, attention is on the upcoming October employment report, which is predicting a loss of 2,500 jobs. This follows a rise of 60,400 jobs in September. Additionally, the unemployment rate is expected to stay at 7.1%, which could affect the Bank of Canada’s decisions on interest rates.

US Job Market Update

In the US, new data shows job losses in October as companies cut costs and embrace new technologies. The Federal Reserve’s decisions may be influenced by remarks from Vice Chair Philip Jefferson and the Michigan Consumer Sentiment Index, which is predicted to decline for the fourth consecutive month. The Net Change in Employment is crucial for economic health, with a higher figure typically benefiting the Canadian Dollar. The Unemployment Rate also sheds light on Canada’s economic health, and changes in these metrics can significantly impact currency markets. Given the sudden shift on November 7, 2025, we need to reevaluate our USD/CAD positions. This morning’s Canadian jobs report surprised everyone with a gain of 41,500 jobs instead of the expected loss of 2,500. This unexpected surge in job growth has quickly strengthened the Canadian dollar, pushing the USD/CAD pair back below 1.4100. The bearish outlook for the US dollar is gaining traction, following the release of the University of Michigan Consumer Sentiment Index. It dropped to 50.3, missing forecasts and reaching its lowest point in two years. This reflects growing consumer pessimism about the US economy, reminiscent of the inflation panic in mid-2022, hinting at a significant slowdown in economic activity.

Policy Divergence

This situation highlights a clear policy divide between the Bank of Canada and the Federal Reserve. Strong Canadian economic data supports the BoC in maintaining interest rates, while weak US employment numbers and consumer sentiment put pressure on the Fed to adopt a more dovish approach in December. According to Fed funds futures, there’s now over a 40% chance of a rate cut by the end of March 2026. In the weeks ahead, we should prepare for increased volatility in the USD/CAD pair. Buying options like straddles could be a smart way to navigate this uncertainty, allowing for capitalizing on significant moves in either direction without picking a specific outcome. This is particularly relevant with comments from Fed Vice Chair Jefferson expected later today, which could trigger a strong market reaction. For those with a directional stance, the most likely path for USD/CAD seems to be downward. We might consider purchasing put options with strike prices close to 1.4000 or selling call spreads above the recent high of 1.4140, as this peak has become a substantial resistance level. That said, we must be cautious about overall market sentiment. Concerns about an AI bubble and declines in tech stocks could lead to a flight to safety, which often favors the US dollar. If Wall Street experiences another major drop, it might temporarily overshadow weak economic data and cause the USD/CAD to rise unexpectedly. Create your live VT Markets account and start trading now.

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