Canada delivered another major jobs surprise with 54k new positions, pushing the jobless rate sharply lower. Markets priced in future hikes as yields spiked, though analysts still expect the Bank of Canada (BoC) to hold steady through 2026, TDS' economists Robert Both and Emma Lawrence note.

BoC still seen holding rates despite hot data

"CAD employment registered another sharp upside surprise with 54k jobs created in November, beating expectations for a modest unwind of recent strength (TD: -15k, market: -2.5k). Softer labour force participation contributed to a 0.4pp decline to 6.5% for the unemployment rate, while wage growth held at 4.0% y/y for permanent workers."

"Today's report extends the performance from Sept/Oct, pushing the 3m trend to 60.2k. The December BoC already looked like a comfortable hold heading into the data, and while stronger labour market conditions could see the BoC put more emphasis on inflation risks, we still look for them to stay on hold at 2.25% through next year."

"The market was sent into a frenzy as the upside surprise sparked a sell-off across the curve. Yields in the front-end are up 16 bps, and cross-currency spreads hit some of the widest levels since early 2024. Notably, while the market has now added hikes into the narrative for 2026, we still see the BoC on hold for 2026 and hiking in early 2027."