Canadian currency gains were driven by robust employment data, contrasting with weaker US labour market conditions. Despite concerns about job quality, Canada’s unemployment rate decreased sharply, with wage gains elevated and full-time job additions averaging 26,000 over the past three months.<\/p>\n
Markets anticipate the Bank of Canada will begin tightening late next year, compressing spreads and strengthening the Canadian dollar. If predictions of rate changes hold\u2014100 basis points in cuts from the US Fed and 50 points of tightening from the Bank of Canada\u2014the policy spread may narrow from 175 to 25 basis points. The Canadian dollar retained gains from Friday, marking its strongest rebound since April and is near its fair value estimate of 1.3801.<\/p>\n
USD losses late last week disrupted a mid-year bull trend, with spot losses reaching the 1.4140 double top target and dipping below the 50% retracement of the June-November rally (1.3840). Current USD-bearish momentum could lead to further losses, potentially extending to the mid-1.37s. Resistance levels for the USD are identified between 1.3975 and 1.4025.<\/p>\n
The divergence we identified late last year between the Canadian and US economies has become more pronounced. The latest report from Statistics Canada, released on December 5, 2025, showed a robust addition of 45,000 jobs, keeping wage growth firm at 5.2%, while the US non-farm payrolls data showed a softer-than-expected gain of only 150,000. This confirms the ongoing resilience in Canada’s labour market compared to the slowdown in the United States.<\/p>\n
This economic split has driven the central bank policy we anticipated throughout 2025. As we look back, the Bank of Canada has indeed tightened its policy rate by 50 basis points this year, while the Federal Reserve has cut its rate by a total of 75 basis points to support a cooling economy. The interest rate differential has therefore narrowed significantly, providing a powerful tailwind for the Canadian dollar.<\/p>\n
The USD\/CAD exchange rate has responded accordingly, breaking the bullish trend that was in place for much of 2024. The pair is now testing levels not seen since the summer of that year, with momentum clearly favouring further Canadian dollar strength. Given the fundamental backdrop, we see the potential for losses to extend toward the 1.3750 support zone in the coming weeks.<\/p>\n
For derivative traders, this environment suggests that buying USD\/CAD put options is a straightforward way to position for further downside. This strategy allows for participation in the Canadian dollar’s strength while limiting risk to the premium paid. Selling out-of-the-money call spreads on USD\/CAD could also be considered to collect premium, capitalizing on the view that a significant rally is unlikely.<\/p>\n
Alternatively, those with commercial interests can use this momentum to their advantage. We believe it is an opportune time for Canadian exporters to use forward contracts to sell their future US dollar receivables at these more favourable rates. This locks in gains from the stronger Canadian dollar and hedges against any unexpected reversals in the currency pair.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Canadian dollar strengthens as strong jobs data contrast with US slowdown; markets adjust rate hike expectations.<\/p>\n","protected":false},"author":62,"featured_media":16967,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-36292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t