Canada Employment Falls -17.7k as Unemployment Rises to 6.9%

For the Bank of Canada, the wage numbers are arguably more pivotal than the headline jobs count. Average hourly wages rose 4.5% year-over-year in April, decelerating from 4.7% in March. That still leaves wage growth elevated relative to the BoC's 2% inflation target, but the direction of travel is now unmistakably lower. If wage gains continue to moderate while the unemployment rate drifts higher, the central bank will face less domestic pressure to maintain restrictive rates.

Rate markets have already priced in a gradual easing cycle. The April jobs data strengthens the case that the BoC can start cutting sooner – or deliver larger cumulative cuts – without reigniting wage-driven inflation. This transmission channel operates through the 2-year yield spread. As Canadian short-dated yields fall relative to U.S. Treasuries, the interest-rate differential widens against the loonie, inviting selling pressure on the Canadian dollar.

USD/CAD and the Rate Differential Dynamic

The immediate reaction in USD/CAD reflected this rate-channel logic. A softer labour market reduces the need for the BoC to match the Federal Reserve's higher-for-longer stance, so the pair typically rallies on such data (CAD weakens). The move can be amplified if the data coincides with stable or rising oil prices, because Canada's commodity-currency overlay sometimes cushions the loonie. In April, however, the domestic story dominated, making the rate differential the primary driver.

For traders, the better read is that the April report provided a fresh catalyst to reprice the BoC glidepath, not just a one-day headline trade. The full-time numbers, participation dynamics and the wage slowdown all point in the same direction – labour-market slack is building and wage pressures are easing, which lowers the hurdle for a rate cut at an upcoming meeting. The key risk to this view would be a sharp reversal in Canadian CPI, but for now the data flows are aligned for a weaker loonie against the U.S. dollar.

Next marker: the Bank of Canada's next policy decision, where the Governing Council will have a full quarter of post-April data to assess. If subsequent CPI prints also come in soft, the combination of a loosening labour market and tamer inflation would put a series of cuts firmly on the table.