Canada saw a net job loss of 24.8K in January, much lower than the expected gain of 7K. This decline could impact the labour market and the economic outlook for the country.
Analyzing economic indicators and labour market changes can help us understand how this job loss affects market trends.
Weakening Canadian Economy
This unexpected job loss signals that the Canadian economy may be weakening. Losing 24.8K jobs, when modest growth was anticipated, raises the likelihood that the Bank of Canada will need to lower interest rates soon. We now see an increased chance of a policy shift from the central bank in the coming months.
In light of this, we should consider positioning for lower interest rates in Canada using derivatives. This might include buying Bankers’ Acceptance futures (BAX), which would gain value if the Bank of Canada cuts its overnight rate. Overnight index swaps already show almost a 50% chance of a rate cut by April, up from 20% last week.
A more dovish central bank will likely weaken the Canadian dollar, especially against the US dollar. The USD/CAD exchange rate is nearing 1.37, and we expect this trend to continue as US economic data remains strong. We should look into buying call options on USD/CAD to benefit from a further increase.
Impact on Canadian Stock Market
This poor employment outlook also negatively affects the Canadian stock market. In 2025, we saw how worries about slowing growth pressured the TSX Composite Index after past rate hikes. It might be wise now to hedge long positions by buying put options on broad market ETFs.
This jobs report comes amid other softening data, including inflation dropping to 2.5% in December 2025 and a mere 0.5% growth in Q4 GDP. These trends support our belief that interest rates will likely move lower. We will be on the lookout for the next CPI release to confirm this direction.
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