Canada recorded a loss of 68,300 jobs in September, well below forecasts for a 7,000 gain, with the unemployment rate rising to 6.5 percent. This followed August’s 41,700 job loss, erasing all net employment gains in 2026. The Canadian dollar weakened, pushing USD/CAD to trade just under 1.4300.
Labour market details
The unemployment rate increase was partly driven by about 53,000 people leaving the labour force. If those individuals had remained, the rate would have been closer to 6.8 percent.
With labour force participation declining, the unemployment figure matched forecasts despite the sharp job losses.
Market reaction and policy outlook
The USD/CAD pair jumped quickly from just below 1.4250 to nearly 1.4300 in a five-minute window following the employment report release. This was the highest level for the pair since early April 2025. Although about a third of the spike was later given back, USD/CAD held above 1.4250, including during a subsequent University of Michigan sentiment index release.
Traders have reduced expectations for an upcoming Bank of Canada rate hike, now seeing the next increase as more likely in December rather than October. The Bank of Canada’s policy rate remains at 2.25 percent, nearly 1.5 points below the Federal Reserve’s 3.75 to 4.00 percent range, highlighting some scope for divergence in monetary policy between the two central banks.
Economic sentiment and inflation expectations
The University of Michigan sentiment index dropped to 46.3, below the forecast of 47.6, marking one of the lowest readings on record. Year-ahead inflation expectations from the survey rose to 4.7 percent, indicating ongoing concerns about inflation among consumers.
Meanwhile, US 10-year Treasury yields remained above 5.25 percent.
Data: Swissquote
