TD Securities economists Robert Both and Emma Lawrence forecast Canada’s March international merchandise trade deficit at CAD 1.5 billion. This would be narrower than the prior month’s CAD 5.75 billion deficit.
The projection is based on stronger exports linked to higher energy prices and auto output. West Texas Intermediate (WTI) rose 40% month-on-month, while non-energy exports are expected to post smaller gains.
For April, they expect employment to rise by 5,000, following a 14,000 increase in March. The unemployment rate is projected to stay at 6.7%.
Wage growth is forecast to slow by 0.3 percentage points to 4.8% year-on-year. The article notes it was produced with the help of an Artificial Intelligence tool and reviewed by an editor.
We are seeing a familiar pattern develop, similar to what we observed back in the spring of 2025. At that time, a significant jump in WTI prices helped improve the trade balance, but the labour market remained stubbornly weak. This created conflicting signals for the Canadian dollar.
Fast forward to today, May 4, 2026, and the narrative is echoing last year’s. WTI crude has stabilized over $85 a barrel, and the latest trade data from Statistics Canada for March showed a merchandise trade surplus of $1.1 billion, beating expectations. This strength in the energy sector is providing a solid floor for the currency.
However, the job market is once again telling a different story and creating tension. The April jobs report released last Friday was a major disappointment, showing a net loss of 15,000 jobs. This pushed the unemployment rate up to a two-year high of 6.8%, putting serious pressure on the Bank of Canada to consider easing policy.
This divergence between strong trade figures and a weak jobs market suggests heightened volatility for the Canadian dollar in the weeks ahead. Traders should consider buying USD/CAD straddles or strangles to profit from a significant price move, regardless of the direction. The market is uncertain whether the Bank of Canada will focus on the strong export economy or the weakening domestic employment picture.
The upcoming Bank of Canada interest rate announcement on June 5th is now the key event. Implied volatility on CAD options expiring after that date is rising, reflecting the growing uncertainty. A strategy that benefits from this increase in volatility, rather than betting on a specific direction, is the most prudent approach for the coming weeks.
We are also looking at Canadian government bond futures. The weak employment data has increased the odds of a rate cut by the Bank of Canada this summer, with the market now pricing in a nearly 60% chance of a cut by July. Buying call options on two-year Canadian bond futures could be an effective way to position for this potential policy shift.
