Insights 
VT 
The USD/CAD pair maintained its recovery move near 1.4000, following a rebound in the US Dollar. This rise occurred even with the US ISM Manufacturing PMI falling to 48.2 in November, indicating a potential for a Fed rate cut.
As of Tuesday’s Asian trading session, the US Dollar Index, which measures the Greenback against six major currencies, held steady near 99.40. The Manufacturing PMI’s fall, weaker than economists had expected, suggested a continued contraction in the US manufacturing sector.
Fed Rate Cut Probability
The probability of a Fed rate cut by 25 basis points to between 3.50% and 3.75% in December stands at 86.5%. The focus shifts to the upcoming US ADP Employment Change and ISM Services PMI data, expected to impact the US Dollar’s trajectory.
For the Canadian Dollar, attention is on November’s employment data to be released Friday. Economists forecast the Canadian Unemployment Rate to rise to 7%, up from 6.9% in October. PMIs serve as a key economic indicator, with figures above 50 indicating manufacturing expansion, whereas figures below 50 suggest a contraction.
We see the USD/CAD pair holding near the 1.4000 level, a key psychological mark for traders. This firmness comes even as the latest US ISM Manufacturing PMI report showed a ninth straight month of contraction at 48.2. These weak figures solidify our expectation for a Federal Reserve interest rate cut in December, with markets pricing that probability at over 85%.
This prolonged weakness in the US factory sector reminds us of the 2015-2016 period, when manufacturing also slumped without immediately causing a wider recession. Back then, the US Dollar often found strength as a safe haven amid global uncertainty, which may explain its resilience now. Traders should be cautious of being too bearish on the dollar based on manufacturing data alone, as the upcoming services PMI on Wednesday will give a better view of the broader economy.
Canadian Employment Data and Market Implications
On the other side of the pair, we are watching Canada’s upcoming employment data very closely. The market expects unemployment to tick up to 7.0%, which is a significant figure when we remember it was closer to 6.1% at the start of 2025. This trend, combined with WTI crude oil prices which have struggled to stay above $75 a barrel for the past quarter, puts considerable pressure on the Canadian dollar.
With major event risk from both countries packed into this week, we anticipate a sharp rise in short-term volatility. Derivative traders could consider strategies that profit from a large price move, regardless of direction, such as buying a weekly straddle. This would position for a potential surprise from either the US services report or the Canadian jobs numbers on Friday.
The main driver will be the monetary policy divergence between the two central banks. If the Canadian employment data comes in significantly weaker than forecast, it will increase bets that the Bank of Canada must cut rates more aggressively than the Fed in early 2026. In that scenario, buying longer-dated USD/CAD call options could be a strategic play on continued Canadian economic underperformance.
