In August, Canada’s job market saw a decrease of 66,000 jobs after a drop of 41,000 in July, indicating a worsened scenario. Unemployment stands at 7.1%, the highest in a decade outside pandemic conditions.
Most job losses were part-time, but actual hours worked slightly increased by 0.1%. The decline mainly affected trade-exposed sectors, with manufacturing, transport, and warehousing losing 42,000 jobs.
Canadian Dollar Performance
The Canadian dollar is the weakest among G10 currencies, even lagging behind the US dollar at 1.3846. The negative job report may push the Bank of Canada to consider further interest rate cuts, with a 92% chance of this happening.
Further easing could be considered if inflation prints remain soft. The current outlook assumes low tariffs due to CUSMA and strong domestic consumer spending, which may prevent a widespread economic downturn. Resilience in other sectors might support overall economic stability, despite challenges in trade-exposed areas.
With the Canadian economy losing 66,000 jobs in August 2025, a Bank of Canada interest rate cut on September 16th is almost a certainty. The market is pricing in a 92% chance of a cut, so we are positioning in CORRA futures to take advantage of falling short-term rates. A cut would be the first since the bank began pausing its tightening cycle earlier in the year.
Trade Currency Observations
The Canadian dollar is already weak at 1.3846 against the USD, and a rate cut will likely push it lower. We are looking to buy call options on the USD/CAD pair, targeting a move above 1.40, a level not consistently seen since the 2020 pandemic turmoil. This trade is supported by the loonie being the worst-performing G10 currency today.
This weakness is not isolated, as the U.S. jobs report also released today showed a slowdown, with only 95,000 jobs added against expectations of 150,000. This global softening reinforces the idea that central banks are shifting to an easing stance. However, the Bank of Canada is clearly on a more dovish path than the Fed, which supports our weak loonie outlook.
On the equity side, we are using derivatives to short trade-exposed sectors like manufacturing and transport. The August 2025 jobs report showed these specific areas lost 42,000 positions, indicating they are the epicentre of the trade war’s impact. Buying put options on industrial ETFs is a direct way to play this continued weakness.
Conversely, a rate cut is a positive signal for domestic, interest-rate-sensitive sectors. We see an opportunity in buying call options on Canadian bank and real estate investment trust (REIT) ETFs. These sectors stand to benefit from lower borrowing costs and the noted resilience in consumer spending.
All eyes are now on the Canadian CPI report, due the day before the Bank of Canada meeting. The last inflation reading for July 2025 was 2.5%, and another benign print would solidify the rate cut and perhaps signal more to come. We expect volatility to rise and are considering strategies that would profit from sharp market movements around that release.
