Insights 
VT 
Bank of Canada Governor Tiff Macklem referred to Canada’s unexpectedly strong labour market report for September as an outlier. This is understandable, considering previous weaker figures, allowing policymakers to cut interest rates in October despite higher inflation.
However, the October labour market figures revealed stronger job growth than anticipated, with employment surpassing expectations of a decline. The unemployment rate dropped below 7%, and wages increased more than expected, questioning the case for another interest rate cut in December.
Labour Market Volatility
The strong data might not indicate a real trend reversal, as the labour market remains volatile since February. Future months could show job losses nullifying recent gains, a pattern seen earlier this year. Currently, market participants favouring the CAD can feel at ease, a rarity given its performance this year.
We’ve seen the Bank of Canada justify its October rate cut by calling the strong September job report an outlier. However, the data released last Friday for October jobs showed an even bigger gain of nearly 80,000 positions, which has seriously challenged that view. This second surprise has forced a reassessment of whether the central bank will be able to continue easing its policy.
The market has rapidly changed its tune on future rate cuts, which is where the immediate opportunity lies. Just last month, swaps markets were pricing in a greater than 50% chance of another cut in December; today, those odds have plummeted to below 20%. Traders should be looking at positions that benefit from the Bank of Canada being forced to hold rates steady for longer than was expected.
Canadian Dollar Volatility
This sudden conflict between recent central bank action and incoming data has likely pushed up short-term volatility in the Canadian dollar. Looking at options, the uncertainty suggests that strategies betting on a significant price move, rather than a specific direction, could be valuable. The Canadian dollar has been stuck in a downtrend for most of 2025, and these two reports are the first real challenge to that narrative.
We must remember the labour market has been erratic since US trade tensions flared up again in February 2025. Looking back at similar periods of trade friction, such as in 2018, we saw headline job numbers swing wildly month-to-month without a clear underlying trend. It is entirely possible that we could see a large negative print for November’s data, erasing these recent gains.
Given the risk that this is just a temporary blip, traders may want to avoid taking on unlimited risk. Using defined-risk strategies, such as buying call spreads on the CAD, could be a prudent way to position for potential continued strength into year-end. This approach allows for upside participation if the labour market strength is real, while capping potential losses if it proves to be another outlier.
