The Canadian jobs report for July 2025 indicates an employment change of -40.8K, contrary to the expected +13.5K. Previously, there was an increase of +83.1K. The unemployment rate is 6.9%, which is slightly below the anticipated 7.0%.
Full-time employment dropped by 51.0K, following an earlier increase of 13.5K, whereas part-time employment rose by 10.3K in contrast to an earlier increase of 69.5K. The participation rate is 65.2%, a decline from 65.4%. Average hourly wages grew by 3.3%, compared to a previous rate of 3.2%.
Weak Employment Growth For The Year
The report suggests weak employment growth for the year, with minimal changes in employment numbers since January. Following the report, the Canadian dollar weakened as traders adjusted the likelihood of a rate cut in September from 33% to 38%.
The Bank of Canada may need more compelling reasons to justify a rate cut in September, considering the higher underlying inflation.
The jobs numbers for July 2025 were a clear disappointment, showing a significant loss of 40,800 jobs when we were expecting a gain. This weakness, especially the drop in full-time work, is why traders are now pricing in a higher chance of a September rate cut, bumping the probability up to 38%. As a result, we’ve seen the Canadian dollar weaken against the US dollar.
Potential September Rate Cut
We remember the situation back in late 2023 and early 2024, when economic growth slowed but inflation remained stubbornly above the Bank of Canada’s 2% target. During that time, the Bank held rates steady for a prolonged period, waiting for clear evidence that inflation was under control before considering cuts. This history suggests the Bank of Canada will be very cautious and may not cut rates based on a single poor jobs report, especially with wages still rising at 3.3%.
For the coming weeks, a key strategy is to use options on Bankers’ Acceptance futures (BAX) to position for a potential September rate cut. Traders are buying contracts that will profit if the Bank of Canada does cut rates, but these are relatively cheap because the chance is still less than 50%. This creates a trade with a defined risk if the Bank decides to hold rates firm due to persistent wage inflation.
Given the weak data, we expect the Canadian dollar to remain under pressure against the US dollar. Looking back, when the Bank of Canada last began a major policy shift, the USDCAD exchange rate often moved significantly in the months leading up to the official announcement. Therefore, using options to short the loonie, such as buying puts on the Canadian dollar, is a popular move to hedge against or profit from further weakness.
The biggest wildcard remains inflation, with the next Consumer Price Index (CPI) report being the most important data point before the September meeting. Canada’s core inflation has been hovering around 2.8% recently, still well above the Bank’s target. If that number comes in hot, it could easily erase the current rate cut bets and cause a sharp reversal in the Canadian dollar.
