Insights 
VT 
USD/CAD is weakening as the US Dollar faces ongoing selling pressure. Weak ADP data amplifies US labour market concerns, affecting the US Dollar. Friday’s Canadian jobs report is gaining attention ahead of the Bank of Canada’s interest rate decision.
The Canadian Dollar is strengthening against the US Dollar, trading around 1.3950. The Greenback is pressured by a dovish Federal Reserve outlook, nearing one-month lows as bearish trends grow.
ADP National Employment Report
The ADP National Employment Report shows private-sector job losses in November by 32,000, missing expectations of a 5,000 increase. October’s revised figure now stands at a 47,000 gain, up from 42,000.
This data is timely for policymakers, with November and October Nonfarm Payrolls to be released on December 16. The US Dollar Index fell to around 98.96, near a one-month low, down about 0.40%.
Markets believe the data supports a potential Fed rate cut, aligning with policymakers’ recent comments on slowing labour. The ISM Services PMI later in the day could further support easing expectations.
In Canada, the Q3 Labour Productivity figures rose 0.9%, against a 0.4% forecast. Attention turns to Friday’s labour market release, pivotal before the Bank of Canada’s December rate decision.
US Labor Market Trends
We’re seeing clear signs the US labor market is losing steam, with the ADP report showing a surprising drop in private payrolls. This reinforces our view that the Federal Reserve will cut interest rates at its meeting next week. For derivative traders, this means positioning for further downside in USD/CAD should be the primary focus in the coming weeks.
The weak ADP print isn’t an isolated event, as recent data from the Challenger, Gray & Christmas report showed job cut announcements rose by 15% in November 2025, reaching the highest level in eight months. This trend suggests the official Nonfarm Payrolls report due on December 16 could also disappoint expectations. This puts a firm ceiling on the US dollar for the remainder of the year.
On the other side of the pair, we expect the Bank of Canada to be more hesitant to cut rates. Canada’s latest CPI report showed core inflation remains sticky at 3.1%, well above the BoC’s target. This policy divergence, where the Fed is easing while the BoC may hold steady, provides a strong fundamental reason for continued Canadian dollar strength against its US counterpart.
We have seen this playbook before, most recently in late 2023 when markets began pricing in aggressive Fed cuts for the following year. During that period, the US Dollar Index fell nearly 5% in just two months. The current setup feels very similar, suggesting this initial move lower could have significant follow-through into early 2026.
Given the high probability of a Fed cut and the upcoming Canadian jobs report, we believe buying January 2026 expiry put options on USD/CAD is a compelling strategy. Look for strikes around the 1.3850 level to capitalize on a break of the recent lows. This offers a defined-risk way to profit from the expected increase in volatility around the Fed and BoC meetings.
