Canada

Research evidence excerpt

Canada

years members of the Governing Council goods industries (Figure 2). Gains will likely be concentrated

have sought to downplay any mechanical links between Fed in health care, education, and professional services, while

policy rates and those in Canada. While a widening interest trade-exposed sectors are likely to again be weak. We expect

rate gap might pressure the currency to weaken—which manufacturing to remain roughly unchanged and transporta-

would could feed back into additional inflationary pres- tion and warehousing to see modest declines. Thus far, the

sures—Governor Macklem has noted that the BoC is not tar- trade war damage has remained largely in export-oriented

geting a particular level of the exchange rate. Although the industries, while domestic services have held up.

currency has weakened against the USD recently, it remains

below levels seen in early 2025 despite a broadly similar Figure 2: Labour Force Survey employment

move in the yield differential as then (Figure 1). Change in thousands, 6-month moving average

Figure 1: USD/CAD spot and 2y yield spread

60 USD/CAD %

Service-producing sector

1.50 1.75 40 USD/CAD US-CA 2y yield spread

1.50 1.45 1.25 20

1.40 1.00

0 0.75 1.35 0.50 Goods-producing sector -20

1.30 0.25

2022 2023 2024 2025 2026

0.00 Source: Statistics Canada, J.P. Morgan 1.25 -0.25

1.20 -0.50

15 16 17 18 19 20 21 22 23 24 25 26 We assume labor force growth of around 10k, a touch below

Source: Bloomberg Finance LP, J.P. Morgan the pace of recent months. This pace would be consistent with

an ongoing deceleration in population growth to near

Risks abound; rates held steady 0.7%oya, from a peak of 3.6%oya in mid-2024. With employ-

ment gains modestly outpacing softer labor force growth, we