The Canadian jobs report for July 2025 shows a loss of 40,800 jobs, much worse than the expected gain of 13,500 jobs. Previously, there was a growth of 83,100 jobs. The unemployment rate is at 6.9%, just below the expected 7.0%. Full-time jobs decreased by 51,000 after an earlier increase of 13,500 jobs. In contrast, part-time jobs increased by 10,300, which is down from the previous growth of 69,500 jobs. The participation rate fell to 65.2% from 65.4%. Average hourly wages grew by 3.3%, slightly up from 3.2%.

Weak Employment Growth For The Year

This report indicates weak job growth for the year, with little change in employment numbers since January. Following the release of this report, the Canadian dollar weakened as traders adjusted the chances of a rate cut in September from 33% to 38%. The Bank of Canada may need stronger reasons to justify a rate cut in September due to ongoing higher inflation. The July 2025 jobs report disappointed, showing a significant loss of jobs when a gain was expected. This weak performance, especially the decline in full-time jobs, has led traders to increase the likelihood of a rate cut in September to 38%. Consequently, the Canadian dollar has weakened against the US dollar.

Potential September Rate Cut

Looking back, in late 2023 and early 2024, economic growth slowed while inflation remained above the Bank of Canada’s 2% target. During that time, the Bank kept rates steady until there was clear evidence that inflation was under control. This suggests that the Bank of Canada will be cautious and may not cut rates based on just one weak jobs report, especially as wages continue to rise at 3.3%. In the coming weeks, a smart move is to use options on Bankers’ Acceptance futures (BAX) to prepare for a possible September rate cut. Traders are buying contracts that will benefit if the Bank decides to cut rates, though these contracts are still relatively inexpensive because the odds are under 50%. This strategy limits risk if the Bank keeps rates steady due to ongoing wage inflation. Given the weak job data, we expect the Canadian dollar to remain pressured against the US dollar. Historically, when the Bank of Canada was set to make significant policy changes, the USDCAD exchange rate often shifted markedly before the official announcement. Thus, using options to short the loonie, such as buying puts on the Canadian dollar, is a common approach to protect against or profit from further weakness. The biggest uncertainty remains inflation, with the upcoming Consumer Price Index (CPI) report being crucial before the September meeting. Canada’s core inflation has recently been around 2.8%, still above the Bank’s target. If that number comes in higher than expected, it could eliminate current rate cut expectations and lead to a strong reversal in the Canadian dollar. Create your live VT Markets account and start trading now.

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