Canada's labor market showed further signs of cooling in October, and investors are quickly adjusting their expectations for the Bank of Canada's next move. Employment fell by 4,700 last month, while the unemployment rate ticked up to 6.7%, according to the latest Labor Force Survey. The data missed forecasts for a gain of 13,600 jobs, and it marked the third consecutive month of softening conditions.
As a result, traders have trimmed the odds of a December interest-rate hike to below 30%, down from above 40% just a short time ago. That shift reflects a growing belief that the central bank may hold off on further tightening as the economy loses momentum.
Beyond the headline numbers
The weakness in October wasn't just a blip. Rosenberg Research, an economic research firm, pointed out that full-time employment fell for a third straight month, with a cumulative drop of 89,400 jobs over that period. The firm estimates that Canada has shed 46,000 jobs so far this year, a notable reversal from the strong hiring seen in 2023.
Wage growth is also easing, which could take some pressure off inflation. Average hourly wages rose 2.2% year-over-year in October, down from 2.3% the previous month and well below the 3.6% pace recorded a year earlier. Slower pay growth suggests that wage pressures are no longer pushing prices higher as aggressively, giving the Bank of Canada more room to pause.
This softer jobs picture comes at a time when other parts of the economy are also showing strain. Canada's GDP has been stalling, and factory data is being watched closely to see if the growth story holds up. The combination of weak hiring and tepid output is raising questions about how much more tightening the economy can absorb.
What it means for markets
When traders lower the odds of a December hike, they aren't just changing their view on one meeting—they're revising the entire expected path for interest rates over the next few quarters. That repricing tends to hit the "front end" of the bond market first, meaning short-dated government bonds like the 2-year, whose yields closely track where markets think the overnight rate is headed.
If the Bank of Canada is seen as less likely to hike, short-term yields could fall, and that can spill over into the Canadian dollar. Currencies often follow relative interest-rate expectations, so a softer Canadian path compared with other central banks could weigh on the loonie, even if the longer-term growth outlook hasn't shifted dramatically.
For everyday investors, this means keeping an eye on bond yields and the currency, as both can affect everything from mortgage rates to the cost of imported goods. A weaker loonie can make foreign travel more expensive and push up prices for goods bought in U.S. dollars, while lower yields could translate into cheaper borrowing costs for variable-rate loans.
What investors should watch next
The Bank of Canada's next decision is scheduled for December, and the jobs data will be a key input. But it's not the only factor. Inflation readings, GDP growth, and global developments—such as oil prices slipping below $98—will also play a role. Lower oil prices can ease inflation pressures but also hurt Canada's energy sector, which is a major part of the economy.
Markets will also be watching how other central banks, like the U.S. Federal Reserve, are moving. A strong U.S. jobs report could keep the Fed on a tightening path, which would widen the gap between Canadian and U.S. interest rates and put further pressure on the loonie.
For now, the message from the labor market is clear: the economy is losing steam, and the Bank of Canada may not need to raise rates again this year. That's a shift that could have real consequences for borrowers, savers, and anyone with money in Canadian markets.
As always, it's important to remember that economic data can be revised, and one month doesn't make a trend. But with three straight months of cooling, the pattern is hard to ignore. Investors should stay tuned for the next inflation report and the Bank of Canada's commentary in the weeks ahead.
