Canada's 10-year government bond yield climbed to 3.65%, nearing the three-month high of 3.66% reached on July 31, after stronger-than-expected labor market data. Employment rose by 75,100 jobs in July, far exceeding the forecast increase of 15,000, while the unemployment rate fell to a two-year low of 6.4%. The robust labor market has heightened expectations of a potential Bank of Canada rate hike if energy prices remain elevated.
At the same time, recent data indicate that Canada's economy grew at an annualized pace of 3.4% in the second quarter, well above the Bank of Canada's projected 2.5% growth rate. In July, the Bank kept its policy rate unchanged at 2.25% for the sixth consecutive meeting, stating that the economy was continuing to adjust to recent shocks and that energy-driven inflationary pressures were easing. Nevertheless, policymakers cautioned that inflation expectations remained elevated and raised doubts about the durability of the recovery.
