BoC Holds Rates Steady as US Data Disappoints, Markets React Across Sectors

05.06.2025

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar 1.3540-1.3770

Euro 1.5530-1.5760

Sterling 1.8430-1.8660

WTI Oil (opening level) $63.71

The CAD/USD is opening at 1.3665 ( 0.7318 )

The Bank of Canada decided yesterday to keep its policy rate unchanged at 2.75% as expected, with the statement suggesting there “may be the need” for further easing down the road as it fretted the threat to the economy from US tariffs and uncertainty on their scale and impact. The forward expectations have priced the BoC to cut by 25 basis points at the September meeting, with a further reduction priced as about 50% likely through the December meeting.

Headlines

· US May ADP Private Payrolls rose only 37k vs. the 114k expected, and the April data was revised slightly lower to 60k from 62k. This is the weakest US private payrolls growth, according to this measure, since a one-off blip in early 2023 and before that since the pandemic outbreak in early 2020.

· The US May ISM Services PMI was out yesterday at 49.9 vs. 52.0 expected and 51.6 in April. It was the lowest reading since June of 2024. The Prices Paid index rose to 68.7 vs. 65.1 expected, the Employment index was at 50.7 vs. 49.0 expected and 49.0 in April, and the New Orders index dipped to 46.4 vs. 51.6 expected and 52.3 in April. That was the weakest New Orders reading since December of 2022.

· The German government approved a package of tax cuts for corporations that could total as much as EUR 46 billion in coming years. The package would include write-offs for up to 30% on movable assets, depreciation benefits for EVs and a lowering of the corporate tax rate, if only from 2028.

Key Points

· Equities: US jobs shock, Europe rallies on tax relief, UK outperforms, Asia tech strength

· Volatility: VIX drops, markets calmer, short-term risk low, options focused on tech

· Digital assets: Bitcoin steady, ETHA up MoM, IBIT sees inflows, vol remains low

· Fixed Income: US treasuries rally hard on weak US data. JGB’s also rally despite weak 30-year JGB auction

· Currencies: USD sold off on weak data yesterday, but move was partially retraced overnight.

· Commodities: Gold only got a mild bid on the weak US data

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