Canada's job market unexpectedly strong, betting that the central bank will resume raising interest rates next year.

On Friday, Canada's latest employment data unexpectedly showed strength, prompting the market to reassess the outlook for monetary policy. With the labor market rapidly improving in November, traders shifted from betting on further rate cuts to believing that the Bank of Canada is more likely to raise rates next year. Overnight Index Swap (OIS) markets now indicate that investors fully factor in the possibility of a rate hike before October 2026, while just the day before, the market still believed Governor Macklem and his team could continue to cut borrowing costs over the next year. The main reason for this shift in expectations is that Canada's unemployment rate unexpectedly dropped by 0.4 percentage points in November, while job growth exceeded all economists' forecasts. This signal indicates that the economy is rebounding from earlier weakness caused by trade tensions and U.S. tariffs. As a result, Canadian bonds faced widespread selling, with the yield on the five-year government bond briefly jumping 20 basis points intraday, showing the market quickly adjusting its pricing of the future monetary tightening path. Andrew Grantham, an economist at the Canadian Imperial Bank of Commerce (CIBC), said that the latest employment data "does show that the economy is rebounding," so he expects that "the Bank of Canada's rate-cutting cycle has come to an end." In fact, the central bank had previously hinted that its rate-cutting actions were nearing an end. In October, the bank lowered the policy rate by 25 basis points, but also noted that if inflation and economic trends align with the bank's expectations, the current rate is "roughly appropriate." Bank officials also warned that ongoing U.S. trade disputes and additional tariffs could limit their ability to further support the economy, especially if tariffs lead to another rise in prices. However, officials also emphasized that they will remain flexible in responding to significant changes in inflation or economic outlook. Compared to the market's rapid shift in expectations, Canadian consumers themselves have a more divided view. According to a survey by Nanos Research, 44% of respondents believe that the policy rate will remain at 2.25% over the next year, 31% expect at least one more cut, only 9% anticipate a hike, and nearly 20% are unsure. This divergence in views could impact the effectiveness of monetary policy in the economy, such as if households generally wait for rate cuts, which could delay major purchases and weaken demand. The survey also showed significant differences in expectations among different groups. Nearly half of women believe that the rate will remain unchanged, double the number expecting further cuts; and over half of respondents aged 55 and above also think the rate will remain unchanged, also about double the number anticipating cuts. The survey covered 1,009 Canadians and was conducted from November 29 to December 2, with a margin of error of 3.1 percentage points. The Bank of Canada will announce its next rate decision on December 10. According to media surveys of economists and market pricing, it is highly likely that the bank will maintain the rate at this meeting. The focus of the market's attention will also be on whether the bank will provide a clearer signal in its statement regarding possible future rate hike paths.