National Bank of Canada economists Warren Lovely, Stéfane Marion and Matthieu Arseneau say the Bank of Canada should publish an explicit unemployment rate forecast in its quarterly Monetary Policy Report. They frame the measure as a core gauge of labour market slack that would sit alongside the Bank’s Consumer Price Index and Gross Domestic Product projections, and they point out that peer central banks, international institutions and private-sector economists commonly provide such forecasts.
The note argues that incorporating a single labour market indicator would align with the Bank’s mandate and its maximum sustainable employment objective, which has featured since 2021, while also reflecting standard theory linking inflation and unemployment. It also contends the Bank is an outlier for omitting labour market guidance and urges a shift in emphasis from the output gap to labour market slack, without altering the formal monetary policy mandate.
Labour Market Data as a Key Policy Driver
We see a growing call for the Bank of Canada to formally forecast the unemployment rate, shifting its focus away from the more abstract output gap. This suggests that labour market data will become an even more critical driver for monetary policy decisions in the near term. Consequently, traders should be prepared for heightened volatility around these releases.
The latest Labour Force Survey from Statistics Canada, released just last Friday, showed the unemployment rate ticking up to 5.9% in May 2026. With inflation still hovering at 2.5%, this creates a clear conflict for the Bank’s next move. This divergence between a softening labour market and persistent inflation is exactly where trading opportunities arise.
Trading Implications of a Weak Labour Market
We are positioning for any upcoming weakness in employment data to directly translate into a dovish repricing of the interest rate path. The CORRA futures market is already pricing in a 40% chance of a rate cut by the fourth quarter, and a weak June jobs report could easily push that above 60%. Historically, during the 2015 easing cycle, the BoC cited labour market underutilization as a key reason for its surprise rate cuts, even with inflation near target.
Given this heightened focus, we anticipate a significant increase in implied volatility on Canadian dollar assets leading into the next jobs report on July 5th. We see value in buying options that profit from a large move in interest rates, as the market may be underestimating the BoC’s reaction to a negative employment surprise. This strategy allows for capitalizing on the binary nature of the upcoming data releases.
