In November, Canada added 54,000 new jobs, bringing the unemployment rate down to 6.5%. This was better than expected and resulted in a 0.4 percentage point drop in unemployment. Wages for permanent workers grew steadily at 4.0% compared to last year. The job growth from recent months has averaged 60,200 new jobs over the past three months, indicating a strong labor market. Despite these positive numbers, analysts believe the Bank of Canada (BoC) will keep interest rates steady at 2.25% for the next year. This is because they think the BoC will focus on inflation risks due to the improving job market. The good employment figures led to more market activity, causing a sell-off across the yield curve. Yields on short-term bonds rose by 16 basis points, and cross-currency spreads hit their widest margins in years. While the market is anticipating rate hikes in 2026, forecasts still suggest that the BoC will maintain its current rate until early 2027. The market’s reaction to the November job growth seems exaggerated, creating a good opportunity for traders. The 54,000 new jobs and lower unemployment rate pushed bond yields higher, but we believe the Bank of Canada will not overreact to this one report. It’s likely that the BoC will keep rates at 2.25% through 2026. This disconnect in expectations points to a chance for traders to bet against short-term rate hikes. The recent sell-off, which increased short-term yields by 16 basis points, is excessive and offers a good point to invest. Traders should look at instruments tied to BoC policy, such as Three-Month Canadian Bankers’ Acceptance Futures (BAX), as their prices may recover when the chances of rate hikes diminish. For currency traders, the recent strength of the Canadian dollar might not last. The BoC is likely to see this jobs report as just one piece of data, particularly since core inflation has dropped to 2.8% in the latest October 2025 numbers, moving closer to the Bank’s 2% target. We recommend taking advantage of this CAD rally against the US dollar, as a dovish message from the BoC in the coming weeks could reverse these gains. We’ve seen a similar trend before, looking back to 2024. After a series of strong economic reports in the spring, the market anticipated aggressive rate hikes that never happened. The Bank of Canada kept its rates steady back then, benefiting traders who correctly predicted its cautious stance on policy.

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