Insights 
VT 
Canadian employment data is anticipated shortly. The Canadian economy is showing signs of slowing, accompanied by a decline in confidence and decreasing house prices. Despite this, consumer resilience is noted, with announced layoffs remaining low.
The report is predicted to reveal 2.5K new jobs after March’s loss of 32.6K jobs. The unemployment rate is expected to rise marginally from 6.7% to 6.8%.
Canadian Dollar Risks
The Canadian dollar faces risks with a market prediction of a 46% possibility for a rate cut in the June 4th meeting.
What this means is relatively straightforward: Canada’s economy appears to be cooling off gently, supported by weakening sentiment, affordability concerns in housing, and softer demand indicators. Yet despite that, individuals seem to be holding up—for now. The labour market, although not as strong as it was six months ago, hasn’t fallen apart either. Layoffs haven’t yet surged, and job losses seen in March might not represent a trend. Instead, they may point to a patchy adjustment period as businesses recalibrate costs amid sluggish momentum.
When confidence fades but households continue to spend, it often implies lagging effects from earlier rate hikes are still filtering through. Borrowing costs remain elevated. Mortgages and credit tend to weigh more on households the longer rates stay high. The limit isn’t immediately visible, but over time, cracks do widen.
Today’s data—if the projected 2,500 job gain matches or slightly exceeds forecasts—won’t move the needle too much, but any negative surprise could prompt a meaningful repricing in short-term rate expectations. Markets are already assigning nearly a coin-flip chance to a rate cut next month. A minor tick higher in the jobless rate won’t do much alone, but if paired with downward revisions to prior months or a deterioration in full-time positions, conviction may increase.
Bank of Canada Outlook
Macklem and his colleagues at the Bank of Canada remain cautious. While they note disinflation progress, they continue to weigh household behaviour closely. Wage pressures, if sustained, could delay easing. Conversely, if employment stalls out further and consumer activity slows more visibly in Q2, there’s less justification for holding tight. It is about timing, not doubt.
For us, that means tracking monthly prints is less about what they say individually, and more about how they string together over several months. The next few weeks could see markets leaning more decisively one way or another. Rate expectations often respond sharply when data aligns over consecutive releases.
Looking at positioning, markets appear hesitant. Implied volatility in CAD crosses has edged up, though not drastically. Short-end futures have absorbed the odds of easing, but hedges haven’t expanded rapidly. That suggests traders are still watching rather than betting aggressively. If the June meeting does result in a rate cut, it might catch out portions of the curve still priced for a longer hold.
We are being attentive to shifts in two-year yields relative to ten-year counterparts. The curve’s residual inversion reflects slower growth looming, but also highlights caution around policy reversal. If employment continues to undershoot and inflation moderates further, one cannot ignore the pressure building on monetary authorities.
Bond market reaction should stay orderly. Swap spreads will reveal whether rate cuts look more justified in the short term. We’ll be tracking changes in front-end instruments to judge if traders are moving from optionality to conviction. Signs of a sustained move lower in three- and six-month rate agreements may serve as confirmation that expectations have firmed up.
Just remember, a single data print rarely defines a shift. But when employment slows, inflation taps down, and sentiment deteriorates in tandem, pressure builds. At that stage, yield curves and forwards show us how the outlook is being repriced, not if it is.
