The Canadian Dollar (CAD) rises against the US Dollar (USD) amid positive employment data, breaking a three-day losing span. The USD/CAD pair is near 1.3990, a 0.20% decrease from Thursday’s peak at 1.4030, boosted by Canada’s September Labour Force Survey results.

Statistics Canada reports a September employment increase of 60.4K, exceeding the expected 5K and countering August’s 65.5K decline. The unemployment rate stays at 7.1%, defying predictions of a rise to 7.2%, with Average Hourly Wages maintaining a 3.6% YoY growth rate.

Bank of Canada’s Dilemma

This labour market improvement eases the pressure on the Bank of Canada (BoC) regarding rate cuts. Traders now see a 57% chance of an October rate cut, down from 72% before the data, although a 25-basis-point reduction is still anticipated by year-end.

West Texas Intermediate (WTI) Crude Oil decreases, falling below $60.00, near a four-month low, dropping over 2%. This decline might curtail the Loonie’s rise due to Canada’s standing as a key oil exporter.

The Loonie is also supported as the US Dollar Index (DXY) weakens, trading near 99.35. Despite near two-month highs, the index is set for its year’s largest weekly gain.

Today’s strong Canadian employment numbers are causing a short-term dip in USD/CAD, which we see trading near 1.3990. The data has pushed back expectations for an immediate Bank of Canada rate cut this month. This temporary strength in the loonie presents an interesting puzzle for us.

Market Strategies Amid Conflicting Signals

We should be cautious, as the latest inflation report for September 2025 showed that core CPI remains sticky at 3.1%, slightly above the Bank of Canada’s target range. This supports the view that the BoC may hesitate to cut rates, but global growth concerns are still the dominant factor. The market is still pricing in a full 25-basis-point cut by the end of the year for a reason.

Looking back at the Bank of Canada’s actions in late 2023 and 2024, we saw them prioritize fighting inflation over reacting to single data points. A similar pattern may be emerging here, where this strong jobs report is viewed as an outlier rather than a new trend. This suggests the Canadian dollar’s current strength might not last.

A significant headwind for the loonie is the price of oil, with WTI crude falling below $60 a barrel. Recent data from the U.S. Energy Information Administration confirmed a surprise build in crude inventories of over 3 million barrels last week, signaling weak demand. As a major oil exporter, this sustained pressure on crude prices directly undermines Canada’s terms of trade and the loonie’s value.

On the other side of the pair, the US dollar remains strong, with the DXY index holding near two-month highs. Recent robust retail sales figures out of the United States have reinforced the view that the Federal Reserve will maintain a hawkish stance compared to other central banks. This fundamental divergence will likely put a floor under any USD/CAD downside.

Given these conflicting signals, we see an opportunity in options to position for a rebound in USD/CAD. Buying call options with a strike price around 1.4050 for the coming weeks offers a low-cost way to profit if weak oil prices and a strong greenback overpower the jobs data. The risk is limited to the premium paid for the option.

Alternatively, for those expecting a significant move but unsure of the direction, a long strangle could be considered. This involves buying both an out-of-the-money call and an out-of-the-money put option. This strategy would benefit from a sharp breakout in USD/CAD, either up or down, as the market decides which factor is more important.

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