Canada’s unemployment rate is anticipated to increase to 7% in November, based on forecasts prior to the Bank of Canada’s upcoming rate decision. The Labour Force Survey from Statistics Canada, expected on Friday, is set to reflect this rise.
In October, the Employment Change indicated positive growth, but predictions suggest no such increase for November. This could affect future monetary policy decisions by the Bank of Canada as the job market displays weaknesses.
The Jobs Report
The jobs report this morning confirmed our fears, with the unemployment rate ticking up to 7.1% for November. This figure, slightly worse than the 7.0% consensus forecast, came as the economy shed a minor 5,000 jobs. These signs of a cooling labour market are putting immense pressure on the Bank of Canada ahead of its decision next week.
With inflation also softening to 2.3% last month, we see a clear path for the Bank to begin easing its policy. The derivatives market is already reacting, with overnight index swaps now pricing in over a 60% probability of a 25 basis point rate cut at the December 10th meeting. This is a significant shift from just a few weeks ago when the market was pricing a hold.
We believe the Canadian dollar is vulnerable here, making long USD/CAD positions attractive. Traders could consider buying call options on USD/CAD to profit from a potential upward move while limiting downside risk. The 1.4000 level, a psychological barrier tested earlier in 2025, now looks like a plausible near-term target if the Bank signals a dovish pivot.
Trading Interest Rates
For those trading interest rates, going long on Canadian government bond futures could be a direct way to play the expectation of lower rates. We saw a similar front-running of the Bank back in the spring of 2025, which led to a sharp rally in bonds when the first cut was delivered. Implied volatility on these contracts is rising, suggesting that options strategies like bull call spreads might be prudent to manage costs.
