In August, Canada’s employment figures showed a decrease of 65.5K jobs, contrasting the forecasted rise of 10.0K. The previous month’s data indicated a drop of 40.8K jobs.
The unemployment rate rose to 7.1%, slightly up from the prior rate of 7.0%. Full-time employment reduced by 6.0K positions, while part-time work saw a decline of 59.7K.
Labour Market Dynamics
The participation rate in the labour force stood at 65.1%. Average hourly wages for permanent workers increased by 3.6%.
This month marks the most severe job loss since January 2022. The probability of the Bank of Canada cutting rates in September has now risen to 90%, from a prior likelihood of 75%.
The August jobs report confirms a clear cooling trend in the Canadian labour market. With two straight months of significant job losses, the economic picture has weakened considerably. This moves a Bank of Canada rate cut from a possibility to a near certainty for the upcoming September meeting.
We are seeing heavy buying in CORRA futures, pricing in not just the September cut but also increasing the odds of another cut by year-end. Looking back at the start of the 2020 easing cycle, the Bank rarely moves just once when faced with deteriorating data. Traders should consider positions that will profit from a lower overnight rate through the remainder of 2025.
Impact on Canadian Dollar
The Canadian dollar is under pressure, and this trend is likely to accelerate. With the US Federal Reserve holding rates steady, monetary policy divergence will be the main driver pushing USD/CAD higher. Buying call options on USD/CAD offers a defined-risk way to position for further loonie weakness into the autumn.
This employment weakness is not an isolated event. Recent data showed Canadian retail sales for July fell by 0.8%, and the latest CPI reading of 2.5% gives the central bank plenty of room to act. The combination of a softening consumer and decelerating inflation provides a clear green light for the Bank of Canada to begin easing policy.
While rate cuts are normally supportive for equities, the underlying economic weakness is a major headwind for the TSX. This uncertainty is causing a notable rise in implied volatility on index options. Traders could use strategies like straddles or strangles to position for a larger-than-expected market move, regardless of the direction, following the BoC’s decision.
