USD/CAD has surrendered the prior session’s gains and hovered near 1.4190 in European trading on Thursday, as markets turned cautious ahead of June’s Nonfarm Payrolls. Attention is on the labour report for read-throughs on US economic momentum and the Federal Reserve’s policy trajectory. At Wednesday’s ECB Forum on Central Banking, Chair Kevin Warsh refrained from giving explicit guidance on the July decision, while reiterating that inflation is still too high and that the central bank remains committed to its 2% target and institutional independence.
Earlier, the ADP Employment Change report showed private payrolls rising by 98,000, below Wall Street’s 113,000 forecast and slower than May’s 122,000 gain. Separately, the ISM Manufacturing PMI eased to 53.3 and missed the 54.0 consensus estimate, reinforcing the softer tone in US data. Any downside in the pair may be tempered by pressure on the Canadian dollar from lower oil prices, even as domestic figures stay firm. Statistics Canada reported 0.5% growth in April after a March contraction, and an advance estimate pointed to a further 0.1% monthly expansion in May.
Focus on US Labor Data and Fed Policy Outlook
We see the market holding its breath for the June Nonfarm Payrolls report, as it will likely dictate the Federal Reserve’s next move. With USD/CAD hovering near 1.4190, the recent string of weak US data, like the ADP miss at 98,000 jobs, suggests a downside risk for the dollar. This puts a significant focus on tomorrow’s NFP release, where consensus estimates are looking for a gain of around 150,000 jobs.
Given the less aggressive tone from Fed Chair Warsh, we believe a weak NFP number, perhaps below 125,000, would significantly increase bets on a rate cut in September. Currently, fed funds futures are pricing in a 65% probability of a cut by that meeting, a figure that could jump above 80% on a poor labor report. Historically, such swift changes in sentiment have triggered sharp sell-offs in the dollar, similar to the 2% drop seen in the DXY index following weak NFP prints in the second quarter of 2025.
Market Positioning and Volatility Opportunities
However, we must also consider the pressure on the Canadian dollar from falling oil prices. WTI crude has dipped below $75 a barrel, a multi-week low, as maritime traffic through the Strait of Hormuz has normalized and diplomatic channels with Tehran appear more active. This weakness in energy prices is capping the loonie’s strength, even though Canada’s own economy showed a solid 0.5% GDP rebound in April.
With such a major event risk, we are positioning for a spike in volatility rather than a specific direction. One-week implied volatility for USD/CAD options has already jumped to over 12%, reflecting widespread anticipation of a sharp move. Therefore, we are looking at strategies like a long straddle, buying both a call and a put option, to profit from a significant price swing in either direction after the data is released.
For those with a stronger bearish view on the US economy, we see an opportunity in buying USD/CAD put options. This would be a direct bet that a disappointing jobs report will overwhelm the negative impact of lower oil prices on the Canadian dollar. A move down to test the 1.4050 support level would be our initial target if the NFP figure disappoints expectations.
