Insights 
VT 
Canada’s Labour Market And Policy Rate
Canada’s resilient labour market has held the Bank of Canada’s policy rate steady at 2.25%. The unemployment rate dropped to 6.9% in October from 7.1%, with 66,600 jobs added, outperforming expectations.
In the near term, the pair’s movement hinges on the US funding bill’s final approval and market responses to forthcoming US employment data. Resolving the shutdown could sustain USD/CAD above 1.4000, although Canada’s robust labour market may cap further gains. The US Dollar showed the strongest performance against the British Pound today.
The resolution of the US government shutdown is giving the US dollar a temporary lift, pushing USD/CAD towards 1.4030. However, we see this as a short-term political boost that runs against the bigger trend of a dovish Federal Reserve. The main question is whether this rally above the 1.4000 psychological level has enough strength to continue.
We need to remember that the Fed is leaning towards another rate cut in December, and recent data supports this view. The latest US Consumer Price Index reading came in just under expectations at 2.8%, suggesting disinflationary pressures are real. The market is now watching the upcoming Non-Farm Payrolls report, where a number below the consensus of 150,000 would solidify the case for a rate cut and likely weaken the dollar.
Canada’s Economic Stability
In contrast, Canada’s economic picture looks much more stable, which should keep the Canadian dollar firm. With the unemployment rate dropping to 6.9% and strong job creation, the Bank of Canada is firmly on hold. This divergence in monetary policy is a powerful headwind for USD/CAD, especially as Western Canada Select oil prices have also firmed up around $75 a barrel, further supporting the loonie.
We have seen this kind of situation before, particularly looking back to 2019 from our current perspective in 2025. After the lengthy government shutdown ended in January 2019, the dollar saw some relief, but the Fed’s dovish pivot that year was the more dominant theme, ultimately capping the currency’s gains. This historical precedent suggests that central bank policy will likely overpower the short-term news flow.
Given the capped upside, the current strength could be an opportunity to position for a move lower. A bear call spread, where we sell a call option at a higher strike price and buy another at an even higher strike to limit risk, seems fitting. This strategy would profit if the pair stays below our chosen level, falls, or even just moves sideways through the coming weeks.
Alternatively, if we are less certain about direction but anticipate a big move after the US employment data, buying volatility could be the better approach. A long strangle, which involves buying an out-of-the-money call and an out-of-the-money put, would allow us to profit from a sharp move in either direction. This prepares us for a surprise in the jobs report that could break the pair out of its current tug-of-war.
