- Canadian employment fell by 68,300 in September, more than erasing all job gains recorded this year, with the unemployment rate edging up to 6.5% from 6.4%. Statistics Canada attributed part of the decline to the public sector.
- The Canadian dollar fell as much as 0.5% to 1.4299 per US dollar, its weakest since the sweeping tariff announcement disrupted markets in April 2025. Canadian bonds rallied, sending two-year yields to a one-month low.
- Before the data, traders had fully priced a Bank of Canada rate increase for December, driven largely by inflation concerns as the Middle East war pushed energy prices higher. Those odds have now fallen sharply.
- Bloomberg describes the figures as an initial sign of how US tariffs have weighed on the Canadian economy. Levies of 50% took effect on billions of dollars of Canadian goods on August 22, and this is the first employment report fully covering the period since.
What Happened?
Andrew Hazlett, a foreign exchange trader at Monex, said the employment figures came in much softer than expected, reducing the likelihood of a hike this year and putting the currency under meaningful pressure. Bipan Rai of BMO Asset Management said the rise in unemployment indicates a labour market under strain with sizeable slack remaining, though he cautioned that two more reports arrive before December and Canadian employment figures are notoriously volatile.
Why It Matters?
The feedback loop is what makes this difficult rather than simply weak. Reduced expectations of rate increases push the currency lower, a weaker currency raises the cost of imports priced in US dollars including energy, and higher imported inflation strengthens the case for the rate increases that were just priced out. The Bank of Canada is therefore facing deteriorating employment and rising imported costs at the same time, with each response to one worsening the other. That is a harder position than the Federal Reserve faces, since the US is at least tightening into domestic strength. The divergence between the two central banks compounds it. US markets now fully price a Federal Reserve increase by year end on inflation grounds, while Canada’s December hike is being priced out on employment grounds. Two neighbouring economies moving in opposite directions widens the rate differential, which pressures the Canadian dollar further and feeds the same loop. For investors the split is straightforward and actionable. A weaker currency benefits Canadian exporters who earn in US dollars while paying costs in Canadian dollars, which favours energy producers and resource companies, and it hurts domestically focused businesses facing higher import costs and softer employment. Canadian banks sit on the domestic side of that divide. The policy context explains why Prime Minister Carney has been moving so quickly on diversification, designating the Pacific Link pipeline a project of national interest to carry a million barrels a day to Asia and pursuing trade arrangements with the European Union, Mexico and China. This employment report is the economic evidence behind that urgency. Rai’s caution deserves weight, since a single volatile monthly figure is not a trend and two more reports arrive before the December decision.
What Next?
Two further employment reports arrive before the Bank of Canada’s December meeting, and given the volatility Rai describes, the direction will not be clear from one print. Watch whether the Canadian dollar stabilises near 1.43 or continues weakening, since currency depreciation is now an inflation input rather than just a market outcome. Canadian inflation data is the other half of the central bank’s problem and will show how much imported cost pressure is building. On trade, whether the US and Canada resume talks after August’s collapse is the variable that matters most for the underlying economy, with the Mexican track reportedly closer to agreement. Ford chief executive Jim Farley has put the chance of a three-country USMCA update at 50-50.
Affected Tickers and Coins: EWC, RY, CNQ
Source: Bloomberg
