Canada’s unemployment rate rose to 6.7% in February. This was above the forecast of 6.6%.
The data indicates a 0.1 percentage point gap between the reported figure and expectations. No further labour market figures were provided in the report.
We are seeing the Canadian unemployment rate for February come in at 6.7%, a touch higher than the 6.6% the market was expecting. This is the fourth consecutive month unemployment has risen, continuing the softening trend we observed in the labor market through late 2025. This data gives the Bank of Canada more reason to consider an earlier-than-anticipated interest rate cut to support the economy.
This weak jobs number is likely to put downward pressure on the Canadian dollar. With recent inflation data for January also showing a cool-down to 2.7%, the odds of a rate cut by June are increasing, a fact money markets are now pricing in with over a 70% probability. We should anticipate traders to build short positions against the CAD, potentially pushing the USD/CAD exchange rate from its current 1.37 level towards the 1.3850 resistance mark seen last fall.
For interest rate derivatives, this report reinforces a bullish stance on bonds. We can expect the yield on the Canadian 2-year government bond, currently at 3.9%, to decline further as traders bet on imminent central bank action. This makes long positions in Canadian bond futures (CGB) or call options on bond ETFs an attractive strategy to capitalize on falling yields.
The outlook for Canadian equities is now more uncertain, which will likely increase volatility in the S&P/TSX 60 index. A slowing economy is a headwind for corporate earnings, but the prospect of lower borrowing costs from a rate cut provides support. We will probably see traders use options to hedge, buying protective puts on broad index ETFs while perhaps selling calls against specific sectors that are less sensitive to economic cycles.
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