Canada’s economy unexpectedly shed a net 2,200 jobs in March, while the jobless rate increased to a new 26-month high of 6.1%, data showed on Friday. Traders in money markets immediately raised their bets that the Bank of Canada will start cutting interest rates in June.
With the 0.3% percentage point rise - the biggest jump since August 2022 - the unemployment rate is the highest since the 6.5% recorded in January 2022. Before the COVID-19 pandemic, Canada’s jobless rate was last as high as 6.1% in November 2017. Nevertheless, Canadian government bond yields are higher this morning, as the U.S. simultaneously released stronger-than-expected jobs data. Both the Canadian two-year and five-year yields are up about 3 basis points. That’s about half the rise being seen in yields of their U.S. Treasury equivalents.
The jump in the unemployment rate in March, together with evidence of easing wage pressures, raise the chance of the Bank of Canada surprising markets with a rate cut next week, although our base case remains that the Bank will begin its loosening cycle in June.