CAD: Employment figures and BoC policy outlook steer the Loonie – ING

Canadian Labour Report: Implications for USD/CAD and BoC Policy

Francesco Pesole from ING highlights the significance of Canada's March employment figures for shaping expectations around the Bank of Canada’s (BoC) next moves. He emphasizes that the unemployment rate carries more weight than the often unpredictable monthly job numbers. Despite the market factoring in roughly 40 basis points of rate hikes by December, Pesole notes that the BoC has shown little inclination toward further tightening. As a result, he anticipates a dovish outlook for Canadian Dollar (CAD) front-end rates and expects USD/CAD to gradually approach 1.3700 if geopolitical tensions continue to ease.

Key Drivers: Employment Data and Interest Rate Expectations

Canada is set to release its March jobs report, with analysts forecasting an increase of 15,000 positions following a sharp decline of 83,000 in February.

However, the unemployment rate is likely to be the primary indicator influencing the BoC’s decisions, as monthly employment changes can be highly erratic.

Looking ahead, Pesole believes that the risks for short-term Canadian rates lean toward a more dovish stance in the near term.

Currently, markets are anticipating about 40 basis points of tightening by year-end—a projection that may be overly optimistic given the BoC’s cautious approach. Additionally, attention could soon turn to USMCA renegotiations, which pose a significant downside risk for Canada’s economic activity and labor market.

For now, USD/CAD remains sensitive to developments in global conflicts, but ongoing de-escalation could pave the way for the pair to move toward the 1.3700 level.

(This report was produced with the assistance of artificial intelligence and subsequently reviewed by an editor.)