Unemployment set to rise in Canada, reflecting a cooling labour market

The Unemployment Rate in Canada is expected to rise further in June.
Further cooling in the labour market could favour additional rate cuts.
The Canadian Dollar remains sidelined around 1.3600 against the US Dollar.

On Friday, Statistics Canada will release the results of the Canadian Labour Force Survey. Market investors predict that the report will come in on the soft side, which might encourage the Bank of Canada (BoC) to resume its easing cycle.

The BoC kept its policy rate at 2.75% at its June meeting, following the same move in April and the 25-basis-point cut in March. Back to the previous meeting, the central bank justified its decision to hold rates steady due to the elevated uncertainty surrounding the White House’s erratic trade policy.

The central bank also suggested that another rate cut could be necessary in July if tariffs cause the economy to weaken. Governor Tiff Macklem reiterated that ongoing uncertainty about the effects of tariffs, the outcomes of trade negotiations, and any new trade measures would constrain the bank’s ability to look far ahead.

He observed that, although first-quarter growth had exceeded expectations, business investment and domestic spending remained largely subdued, and he warned that second-quarter growth would be substantially weaker, a view shared by economists who predicted that this subdued trend was likely to persist.

According to Statistics Canada, the Employment Change increased by 8.8K jobs in May, building on April’s 7.4K gain, while the Unemployment Rate rose for the third consecutive month to 7.0%.

At its most recent meeting, the central bank noted that the labour market had weakened, with job losses concentrated in trade-intensive sectors. The BoC added that employment had so far held up in sectors less exposed to trade but warned that businesses were generally indicating plans to scale back hiring.

What can we expect from the next Canadian Unemployment Rate print?

Consensus among market participants projects a slight rise in Canada’s Unemployment Rate to 7.1% in June, up from 7.0% in May. Additionally, investors forecast the economy will add no jobs in the same month, reversing May’s 8.8K increase. It is worth recalling that Average Hourly Wages, a proxy for wage inflation, held steady at 3.5% YoY for the third time in a row in May.

According to analysts at TD Securities: “Canadian labour markets will remain under pressure in June, with total employment forecast to hold unchanged as the UE rate rises 0.1 pp to 7.1%. Economic uncertainty continues to weigh on hiring sentiment, with PMIs pointing to more layoffs in the goods sector, and our forecast would see the 6m trend slip to just 10k/month. Wage growth is projected to hold steady at 3.5% y/y.”

When is the Canada Unemployment Rate released, and how could it affect USD/CAD?

The Canadian Unemployment Rate for June, accompanied by the Labour Force Survey, will be released on Friday at 12:30 GMT.

The BoC could potentially lower its interest rate at its next meeting due to the further cooling of the labour market, which could also lead to some selling pressure on the Canadian Dollar (CAD). This should support the ongoing rebound in USD/CAD that was sparked last week.

Senior Analyst Pablo Piovano from FXStreet notes that the Canadian Dollar had given up some of its recent gains, causing USD/CAD to rise from levels last observed in early October 2024 in the 1.3550-1.3540 band to the vicinity of 1.3700 the figure at the start of the week.

Piovano indicates that the resurgence of the bearish tone could motivate USD/CAD to revisit its 2025 bottom at 1.3538, which was marked on June 16. Once this level is cleared, it could be followed by the September 2024 trough of 1.3418 and the weekly base of 1.3358 that was reached on January 31, 2024.

He mentions that if bulls gain stronger confidence, it might drive the spot price to its provisional barrier at the 55-day Simple Moving Average (SMA) of 1.3755, followed by the monthly ceiling of 1.3797 reached on June 23, and then the May peak of 1.4015 recorded on May 13.

Piovano notes that, when considering the broader picture, further losses in the pair were likely below its key 200-day SMA at 1.4038.

“Furthermore, momentum indicators appear mixed: the Relative Strength Index (RSI) hovers around 50, while the Average Directional Index (ADX) is around 17, indicating some loss of impetus in the current trend,” he says.

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

Economic Indicator

Unemployment Rate

The Unemployment Rate, released by Statistics Canada, is the number of unemployed workers divided by the total civilian labor force as a percentage. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labor market and a weakening of the Canadian economy. Generally, a decrease of the figure is seen as bullish for the Canadian Dollar (CAD), while an increase is seen as bearish.