Canadian employment data for April showed 18,000 jobs lost versus a market forecast of +10,000 and a TD forecast of +5,000. The unemployment rate rose by 0.2 percentage points to 6.9%.
The fall was led by full-time roles, alongside a mild drop in hours worked and slower wage growth. The report was described as pointing towards weaker labour conditions.
The data was presented as unlikely to move the Bank of Canada closer to interest rate cuts. Instead, it was framed as reducing expectations for Bank of Canada rate rises in the second half of 2026.
Following the release, Canadian rates fell, with front-end rates down 8 basis points. The Canada–US 10-year spread moved below -90 for the first time since November.
The moves were linked to the volatility of the Labour Force Survey series and to changing views on future rate rises. The outlook described was for the Bank of Canada to remain on hold through 2026, with market pricing needing more weak readings to align with that view.
The weak April jobs report, which showed a loss of 18,000 jobs instead of an expected gain, should not be seen as a signal for imminent Bank of Canada rate cuts. While the unemployment rate ticked up to 6.9%, this single data point is unlikely to shift the central bank’s immediate policy. Instead, this weakness reinforces the view that market expectations for rate hikes later in 2026 are likely misplaced.
We have to consider the broader picture, which keeps the Bank of Canada in a difficult position. The latest data from Statistics Canada in April showed year-over-year inflation holding at 2.4%, which is still stubbornly above the 2% target. This persistent inflation, combined with high energy prices, makes it very difficult for the Bank to justify lowering rates right now.
At their last meeting in April, the Bank’s guidance was clearly two-sided, acknowledging both inflation risks and a slowing economy. This jobs report tilts the scale toward the slowing economy argument, but not enough to force a rate cut. It does, however, make the bar for any future rate hike extremely high.
From a trading perspective, the immediate reaction was a drop in front-end bond yields, which was predictable. This supports a strategy of staying long two-year bonds or using derivatives like Bankers’ Acceptance futures (BAX) to bet that rates will not rise. We saw a similar dynamic in late 2025 when the market got ahead of itself pricing in policy moves that never came.
Furthermore, with WTI crude oil prices currently trading around $95 per barrel, inflationary pressures from energy will continue to support the Bank’s on-hold stance. Our view is that this environment is favorable for receiving fixed on interest rate swaps, particularly in the 2-to-5-year part of the curve. This position benefits from a scenario where rates either fall or simply stay flat for an extended period.
This weak employment print is a strong signal, but we should not get carried away, as these monthly numbers can be volatile. It will likely take several more months of soft data for the market to fully price out the possibility of any further hikes in 2026. For now, the strategy is to position for a period of policy inaction from the Bank of Canada.
