In August, Canada reported a loss of 65.5K jobs, which was much worse than the expected gain of 10.0K. Last month, the job count had already dropped by 40.8K. The unemployment rate climbed to 7.1%, up slightly from 7.0% the previous month. Full-time jobs decreased by 6.0K, while part-time positions fell by 59.7K.

Labour Market Dynamics

The labour force participation rate is at 65.1%. Average hourly wages for permanent workers rose by 3.6%. This month marks the largest job loss since January 2022. The chance of the Bank of Canada cutting interest rates in September jumped to 90%, from 75% the prior month. The August jobs report highlights a clear cooling in Canada’s job market. After two months of major job losses, the economic outlook has weakened considerably, making a rate cut by the Bank of Canada very likely in September. There is strong buying activity in CORRA futures, suggesting not only a September rate cut but also a growing chance of another cut by the end of the year. Historically, when the Bank faces poor data, they often make multiple cuts, as seen during the 2020 easing cycle. Traders should look to profit from a lower overnight rate through the end of 2025.

Impact on Canadian Dollar

The Canadian dollar is facing pressure, and this trend could increase. With the US Federal Reserve keeping rates unchanged, the difference in monetary policy will likely push the USD/CAD exchange rate higher. Buying call options on USD/CAD can provide a defined-risk strategy to prepare for further weakening of the loonie this autumn. This decline in employment is part of a larger trend. Recent data indicated that Canadian retail sales fell by 0.8% in July, and the latest CPI reading of 2.5% gives the central bank room to take action. A slowing consumer market combined with lower inflation signals that it’s time for the Bank of Canada to ease policy. While rate cuts usually help stocks, the weak economy presents a significant challenge for the TSX. This uncertainty is leading to a notable rise in implied volatility on index options. Traders might consider strategies like straddles or strangles to prepare for a larger-than-expected market move in either direction after the Bank’s decision. Create your live VT Markets account and start trading now.

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