CAD: Softer jobs data supports on-hold BoC view – TD Securities

TD Securities strategists Robert Both and Emma Lawrence note that weaker Canadian employment in April, including job losses and a higher unemployment rate, is unlikely to bring the Bank of Canada (BoC) closer to rate cuts. Instead, they argue the data should temper market expectations for BoC hikes in late 2026.

Weaker jobs seen tempering hike pricing

"The April jobs report surprised to the downside with 18k jobs lost (market: +10k, TD: +5k) as the unemployment rate rose by 0.2pp to 6.9%. Details were broadly dovish, with full-time workers leading the pullback alongside a mild pullback in hours worked and softer wage growth."

"Even though today's report was notably dovish, we don't think it moves the Bank of Canada any closer to cuts despite the two-sided guidance at their last meeting, but it should help to push back against market pricing for BoC hikes over the second half of 2026."

"Downside surprise in CAD employment sparked a strong rally across the curve, with rates in the front-end down 8 bps and CAN-US 10s below -90 for the first time since November. We wouldn't get too excited given the well- known volatility of the LFS series and take this report more as a reflection of hike speculation being misplaced. Continue to be long 2s, and long duration as we head into the extension."

"Still, the combination of softer data, the lower inflation backdrop, and higher oil prices will keep the BoC on hold for 2026. However, it will take a few strong downside prints for market pricing to converge with that view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)