Canada’s Unemployment Rate increased to 6.8% in December, surpassing the market expectation of 6.6%. The rate was up from 6.5% in November, according to Statistics Canada. The Net Change in Employment for the month was +8.2K, contrary to forecasts of a -5K change.
Average Hourly Wages saw a yearly increase of 3.7%, slightly down from 4% in November. The Participation Rate also rose, reaching 65.4% from 65.1%. Despite these employment statistics, there was little impact on market movements, with USD/CAD remaining mostly stable.
Labour Market Expectations
The labour market data was released amid expectations of job loss, forecasting 5K dismissals compared to 53.6K hirings in November. The Canadian central bank might consider interest rate cuts if economic slowdown signals worsen, even though interest rates stood at 2.25%.
As USD/CAD approaches 1.3871, bullish trends continue, supported by the 20-day Exponential Moving Average and a 14-day Relative Strength Index of 60. The currency pair trades near a key 50% Fibonacci retracement level. Labour market conditions often influence currency value, with employment levels affecting consumer spending and economic growth. Wage growth, a critical inflation gauge, is closely observed by central banks for monetary policy decisions.
When we look back at the employment report from December 2024, we saw the unemployment rate tick up to 6.8%, signaling a softening in the Canadian labor market. This trend continued throughout 2025, with the most recent jobs report for December 2025 showing unemployment has now risen to 7.2%. This persistent weakness confirms the slowdown that was beginning to take shape over a year ago.
Impact on Interest Rates
This ongoing labor market slack has directly influenced the Bank of Canada’s policy. Unlike in late 2024 when the BoC held its key interest rate at 2.25%, we have since seen several rate cuts, bringing the current policy rate down to 1.75% as of our last check. The slowing wage growth, now at an annualized pace of 3.1%, gives the central bank little reason to reverse this dovish course.
With this backdrop, the USD/CAD exchange rate has pushed well past the 1.3900 level discussed in early 2025, now trading near 1.4150. Given the weak Canadian data and the likelihood of further dovish sentiment from the Bank of Canada in its upcoming meeting on January 22, traders should consider bullish strategies on the 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 is anticipating a cautious tone from the central bank, and implied volatility for USD/CAD options is beginning to climb ahead of the meeting. This environment suggests that structuring trades like bull call spreads could be effective, allowing traders to cheapen the cost of a bullish bet. We see the path of least resistance for USD/CAD as upward in the coming weeks, especially if US economic data continues to hold up better than Canada’s.
