TD Sees Weak Trade, Jobs Data Paving Way for Two Bank of Canada Rate Cuts in 2025

09:46 AM EDT, 09/08/2025 (MT Newswires) -- The shortened Labour Day week was a "wild ride," as concerns about fiscal pressures pushed United States bond yields higher to start the week, taking global debt markets with them, TD said.

However, conditions have since cooled as economic data stoked growth worries, the bank said. For Canada, the first week of September offered an update on the ongoing effects of the generational disruptions with US trade.

July's trade update poured cold water on the idea that diversifying away from the United States would be anything short of a "gargantuan" task, TD said.

A jump in shipments to the US offset a steep decline in exports to the rest of the world. The monthly move is good news, but the scale of the ongoing disruption remains "pronounced."

Total goods export volumes are down 4% year over year, to levels last seen in mid-2022. TD said that after the shock in the second quarter, July's data look more like a blip than the start of a new trend.

Looking ahead, Canadian exporters continue to enjoy a relative tariff advantage in the US market, with many goods entering duty-free. But progress on trade discussions with the US administration has been slow. Together with the tariff advantage, this suggests that relief may still be some time away, TD said.

Friday's Labour Force Survey report reaffirmed the scale of the disruption underway. The unemployment rate rose to 7.1%, while the labor market lost about 100,000 jobs in July and August. Overall, the job market has flatlined in 2025, shedding 39,000 jobs since January. With growth expected to remain below trend through 2025, TD said it sees the unemployment rate continuing to rise in the coming months.

However, it is not all gloom, the bank said. While challenges remain, the slowdown in population growth means there is limited scope for the unemployment rate to climb. With fewer people on the sidelines of the labor market, excess capacity will not rise as high as otherwise expected.

The federal government is also expected to prioritize infrastructure projects "of national interest," some of which should help facilitate more global trade, in its budget due next month. In addition, the housing market appears to be on a modest recovery path, with home sales rising from April through July.

The Bank of Canada remains focused on managing inflation, and TD said the balance between the inflationary impacts of tariffs and the slack building in the economy is critical.

A moderate recovery in domestic demand is unlikely to absorb accumulated slack, putting downward pressure on inflation. TD said this reinforces its view that the Bank of Canada will be able to deliver two more rate cuts this year.

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