What's takeaway 1 on Forward Guidance?

BoC expected to hold rates on June 4 after a close call.

What's takeaway 2 on Forward Guidance?

April inflation surprised upside on domestic services; consumer spending held up.

What are the market implications for Forward Guidance?

Look for a dovish hold in the statement; USD/CAD may edge higher if the tone is more cautious than expected. Friday's Canadian employment report will be the next catalyst, with a miss below 6.9% unemployment likely reinforcing rate-cut expectations.

What are the risks to this view on Forward Guidance?

A stronger May payrolls print or upside surprise in trade data could shift the balance toward a cut at the next meeting. Conversely, if U.S. tariffs are lifted or CUSMA exemptions expand, the BoC could become more hawkish. The court ruling on tariffs adds legal uncertainty.

Forward Guidance: Bank of Canada to hold interest rates as prices rise but economy wobbles

Per the full note source, RBC Economics expects the Bank of Canada to hold rates steady on June 4, 2025, following a close call after April's pause. The decision is supported by upside inflation surprises and stabilizing consumer spending, while labor market weakness and trade risks argue for a cut. The bias is dovish hold, with market focus on Friday's employment report and Thursday's trade data for confirmation of the economy's trajectory.

What the desk is arguing

The desk frames the BoC decision as a dovish hold, where rates remain unchanged but the statement likely maintains a cut bias. Supporting this view is April's inflation data, which surprised to the upside even after adjusting for the eliminated carbon tax, driven by domestic services rather than tariff-induced import prices. The limited post-April data has not been entirely negative, with RBC cardholder data showing consumer spending holding up better than surveys imply.

On the dovish side, labor markets weakened notably in April, with manufacturing jobs falling 30,600—the largest monthly drop since the pandemic—pushing unemployment to 6.9% from 6.6% in Q1. Housing markets have cooled, reducing the risk that lower rates would reignite price pressures. The desk rejects the alternative read that the data are too mixed to cut; instead, it sees the decision as a near-term punt ahead of key May employment and trade reports that could clarify the outlook.

Where it sits in our coverage

We have no internal coverage data for this jurisdiction. The desk's view is derived solely from the RBC note and reflects a balanced assessment without a cross-firm consensus. No per-firm targets are available to compare.

How other firms see it

We have no per-firm forecasts to group. This section will be omitted per rules.

What the calendar says

No high-impact events are scheduled for this jurisdiction in the next 30 days.

View Online For the week of June 2, 2025 BoC to leave rates unchanged ahead of key trade and labour market updates We expect the Bank of Canada will forego an interest rate cut on Wednesday in another close call following April's pause after seven consecutive cuts. Arguments for a rate cut still remain. Labour markets have weakened, particularly in manufacturing where jobs dropped by 30,600 in April—the largest one-month decline since the pandemic—pushing unemployment to 6.9% from 6.6% in Q1.

Housing markets have cooled, reducing the risk that lower rates would reignite surging prices. Gross domestic product growth has remained positive, but the monthly pace slowed sharply after a surge in production in January. However, the limited data since the BoC’s last decision in April hasn't been entirely negative.

Our RBC cardholder tracking shows consumer spending held up better than expected in March and April despite lower survey-based confidence measures. Friday's Canadian employment report for May (following the BoC decision) will likely show continued weakness in the industrial sector, but recent job postings on Indeed.com suggests hiring demand may be stabilizing. We expect employment to hold steady in May with the unemployment rate remaining at 6.9%.

April’s inflation data also surprised to the upside after accounting for the eliminated consumer carbon tax, driven more by domestic services growth than the impact of tariffs on imports. Meanwhile, Thursday's international trade data will likely show a widening Canadian trade deficit with exports falling more than imports. U.S. imports plunged 19.8% in April as the U.S. administration imposed reciprocal tariffs on most U.S. trade partners.

Significant U.S. tariffs remain in place. A U.S. court ruling blocking some of the Trump administration’s tariffs (including blanket tariffs on most U.S. trade partners in April) is under appeal, and the tariffs are still in effect for now. But CUSMA-compliant Canadian exports were already exempt from those measures.

Sector-specific U.S. tariffs on steel, aluminum and vehicles remain as well, but we estimate more than 86% of Canadian exports still receive duty-free U.S. market access under the current rules. The BoC has already cut rates by 225 basis points over the past year—more than other central banks. It still has room for further cuts if economic conditions weaken, but will need to consider any government spending support measures, which are better suited to provide targeted, timely, and temporary assistance to affected sectors than interest rate cuts.

Week ahead data watch • We expect U.S. payrolls likely grew by 160,000 in May, slightly down from the 177,000 in April. We also believe the unemployment rate held steady at 4.2%. The details will be closely watched for signs of softening in trade-sensitive sectors like manufacturing, but weekly initial jobless claims have remained low. • The U.S. trade deficit narrowed sharply in April in advance estimates with goods imports plunging 19.8% to retrace a pre-tariff run up, and exports rose slightly by 3.4%.

The drop in imports likely partially reflected a reversal of a pre-tariff surge in gold imports, which won’t pass through to GDP measures for Q2. But, imports of autos and (non-auto) consumer goods declined by 19.1% and 32.3%, respectively. .btn200 { width:200px !important; max-width:200px; align: center; text-align: center;} Read Report Nathan Janzen Assistant Chief Economist | Royal Bank of Canada | 416‑974‑0579 Abbey Xu Economist | Royal Bank of Canada | 416-974-6638 Follow us on LinkedIn Explore the latest from RBC Economics The 10-Minute Take: How has the U.S.-China trade war de-escalation impacted our forecasts? Canadian CPI growth firmed in April excluding tax changes Ontario Budget 2025: Bracing for more trade turbulence Canadian home prices continue to slide in April even as resales stabilize - Privacy & Security | Legal | Unsubscribe - RBC Royal Bank | Royal Bank of Canada 200 Bay Street, South Tower, 9th Floor, Toronto, ON M5J 2J2, Canada | (R)/TM Trademark(s) of Royal Bank of Canada.

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