The Canadian Dollar (CAD) increased by nearly 0.9% on Friday, achieving a second consecutive week of gains. It has appreciated nearly 2.2% against the US Dollar (USD) since the lows in early November.
Canadian labour statistics for November revealed more job additions than anticipated. The unemployment rate dropped to its lowest since August 2024, while 53.6K new jobs were created, surpassing an expected 5K decline.
Impacts of US Inflation Data
US inflation data for September showed a slight improvement, boosting market sentiment and solidifying expectations of a third consecutive Federal Reserve rate cut in December. The US Dollar weakened broadly, favouring the Canadian Dollar, which reached new ten-week highs against the USD.
The USD/CAD pair has moved into bearish territory, with the price now below the 200-day Exponential Moving Average (EMA). Although technical signs hint at oversold conditions, a move back to the 1.4000 level is unlikely without a change in market sentiment.
Factors influencing the Canadian Dollar include Bank of Canada interest rates, Oil prices, economic health, inflation, and trade balance. The health of the US economy, as Canada’s major trading partner, also impacts the value of the CAD.
Given the strong Canadian jobs report from November 2025, we see the Canadian Dollar holding a fundamental advantage over the US Dollar. The drop in the unemployment rate to 6.5% reverses a worrying trend of rising joblessness we saw earlier in the year and reduces the pressure on the Bank of Canada to cut interest rates. This divergence in economic strength is a key theme traders should be watching.
Focus on the Federal Reserves Next Meeting
The market is heavily focused on the US Federal Reserve’s meeting next week on December 10. With expectations firmly set for a third consecutive interest rate cut, the US Dollar is likely to remain under pressure. This follows the Fed’s clear pivot away from the aggressive rate-hiking cycle that defined policy through mid-2024.
For derivative traders, this suggests positioning for further downside in the USD/CAD pair. We believe purchasing puts on USD/CAD or establishing bearish call spreads could be effective strategies to capitalize on this momentum. These positions would benefit if the pair continues to fall, especially if the Fed signals more easing is on the way.
The outlook for a stronger loonie is also supported by commodity markets, where Brent crude oil has been holding steady above $85 a barrel. Historically, stable or rising oil prices provide a significant tailwind for the Canadian economy and its currency. We’ve seen this pattern repeat itself through previous commodity cycles, including the recovery phase in 2021.
However, caution is warranted as the USD/CAD pair is approaching technically oversold levels. While the trend is down, a “sell the rumor, buy the fact” reaction to the Fed’s announcement could cause a short-term rebound. Any failure for the pair to break back above the key 1.4000 level should be seen as an opportunity to reinforce bearish positions.
