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TD Securities expects Bank of Canada to stay on hold through 2026

Canada’s July labor market posted 75,000 more jobs and unemployment fell to 6.4%, while TD sees the BoC returning to neutral in early 2027.

Reported · Written up by our desk · Central Banks

TD Securities economists Robert Both and Emma Lawrence point to a strong Canadian labor market, citing July employment growth of 75,000 jobs and an unemployment rate of 6.4%. They also note the employment rate is at its highest since February 2025, with a July increase in hours worked of 0.6% month over month.

Despite the improvements, TD Securities expects the Bank of Canada to keep policy on hold through 2026, then move back toward neutral in early 2027. The economists say wage growth has cooled, running at 3.0% year over year, supported by base effects, even as private-sector hiring led job growth.

TD Securities argues the BoC can remain patient because there is still “material slack” in the economy, and core inflation is below 2%. They add that the central bank previously was reluctant to fully embrace recent stabilization after acknowledging May and June job growth but reiterating that labor conditions remained soft.

On the Canadian dollar, the note says the upbeat data briefly pushed USD/CAD below the 1.40 support level, but TD does not expect the bearish USD momentum to persist unless the next US CPI outcome also comes in lower, affecting near-term Fed rate pricing.

Next week’s US CPI report is flagged as the next major test for market expectations around near-term Fed rate hikes.

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