We expect the Bank of Canada to hold rates steady on Wednesday, following April’s pause after seven consecutive cuts.
While arguments for a cut remain—such as weakening labour markets, particularly in manufacturing (which saw a 30,600-job drop in April, the largest monthly decline since the pandemic), an uptick in unemployment to 6.9% from 6.6% in Q1, and a cooling housing market—the data since April has been mixed.
GDP growth has slowed from the January surge, but consumer spending has held up better than expected in March and April, according to our RBC cardholder tracking, despite weaker confidence measures.
May’s employment report, due after the BoC decision, is expected to show continued weakness in industrial jobs, though recent Indeed.com postings suggest stabilizing hiring demand. We anticipate stable employment in May, with the unemployment rate holding at 6.9%.
April’s inflation data surprised on the upside after adjusting for the consumer carbon tax elimination, driven mainly by domestic services rather than import tariffs.
Thursday’s international trade data is likely to reveal a widening trade deficit, with exports falling more than imports. Notably, U.S. imports plunged 19.8% in April after reciprocal tariffs were imposed on most trade partners.
Significant U.S. tariffs remain in place despite a court ruling under appeal that blocked some Trump-era measures. However, CUSMA-compliant Canadian exports were already exempt from those tariffs, and more than 86% of Canadian exports continue to receive duty-free access under current rules.
The BoC has already lowered rates by 225 basis points over the past year—more than most other central banks. Although it has room for additional cuts if conditions deteriorate, targeted government spending measures would be better suited to provide timely and focused support than further rate reductions. http://www.ksdmortgages.com