The Canadian Dollar is facing pressure at the start of 2026, with the USD/CAD rate nearing 1.3900. This comes as the December labour force survey is anticipated, showing potential job losses of 2.5k after surprising gains in the previous months.
In recent months, Canada saw job increases of 53.6k in November, 66.6k in October, and 60.4k in September. The Bank of Canada has halted easing, reducing the chances of further CAD declines.
Swaps Curve Projections
The swaps curve indicates a 70% probability of a 25 basis point rate hike to 2.50% within the coming year.
We see the Canadian dollar starting 2026 on a weak footing, pushing the USD/CAD pair towards the significant 1.3900 resistance level. This comes just ahead of the crucial December 2025 labor force survey results due today. The market’s focus is squarely on whether this report will confirm a cooling economy or surprise to the upside.
The consensus expects a minor job loss of 2,500, which contrasts sharply with the strong hiring we saw in the final quarter of 2025. Given that Canadian employment data has a history of surprising forecasts, like the major beat seen in November 2025’s report which added 53,600 jobs against expectations of just 15,000, we should be prepared for volatility. A significant deviation from the forecast today could easily trigger a sharp move of over 100 pips in either direction.
Opportunity for Traders
For traders, this creates an opportunity to position for a spike in short-term volatility around the data release. Buying at-the-money straddles or strangles with expirations in the next week could be a way to profit from a large price swing, regardless of the direction. Implied volatility is likely to rise heading into the announcement, so entering such a position early is key.
Looking beyond today’s data, the bigger picture is shaped by the Bank of Canada’s stance. With the swaps market pricing in a 70% probability of a rate hike to 2.50% this year, the central bank appears hawkish. This is supported by the fact that core inflation during the last quarter of 2025 remained stubborn, averaging 3.2% and keeping pressure on the Bank to act.
This hawkish BoC outlook should provide a floor for the Canadian dollar in the coming weeks. Any significant economic weakness would have to materialize to change this view, but for now, it limits how high USD/CAD can go. Consequently, we see the 1.3900 to 1.4000 area as a formidable resistance zone, which has capped rallies multiple times over the past two years.
Therefore, a viable strategy for the coming weeks could involve selling call options with strike prices at or above 1.3950. This expresses the view that while short-term news might cause spikes, the underlying Bank of Canada policy will prevent a sustained breakout to new highs. This approach collects premium while defining risk around a clear technical and fundamental level.
