08:15 AM EDT, 07/14/2025 (MT Newswires) -- Amid all the upheaval caused by the Unite States' announcement of 35% tariffs on Canadian goods at the end of last week, Friday's Labour Force Survey (LFS) report for June came as a very welcome surprise with 83,000 new jobs created and the unemployment rate fell by 0.2 percentage point, despite the participation rate rising slightly, said Commerzbank.

The only downside was that most of the job growth was in part-time positions. However, the Bank of Canada (BoC) is likely to overlook this, given that labor market reports have been very weak over the last few months, stated Commerzbank.

Based on these figures, another interest rate cut at the end of July now seems highly unlikely, wrote the bank in a note to clients. A cut in September or October is now more likely, should the BoC conclude by then that the Canadian real economy needs more stimulus. This will depend on domestic growth and inflation in the coming months.

Much will also depend on the further actions of the U.S. administration and whether these higher tariffs will come into force on Aug. 1, pointed out Commerzbank. As a reminder, at its April meeting, the BoC refrained from making its usual forecasts and instead outlined two scenarios. One assumes that the tariffs will cause short-term uncertainty but won't last too long. The other scenario is more pessimistic, with the tariffs remaining in place for a prolonged period and putting significant pressure on the Canadian real economy.

In recent months, some leading indicators had recovered somewhat from record lows, raising hopes that the optimistic scenario would prevail, added the bank. This is likely to be one of the reasons why the labor market picked up again in June. However, following President Donald Trump's latest announcement, the risk that the tariffs will have a negative impact on Canada in the medium to long term has increased "significantly."

Although Peter Navarro, one of Trump's key trade advisors, confirmed in a late-Friday-evening interview that goods compliant with the USMCA will continue to be exempt from higher tariffs, he also reiterated that negotiations with Canada are much more difficult than those with Mexico. Trump appears to favor the Mexican president, although Mexico only secured tariffs that are five percentage points lower than Canada's over the weekend.

Nevertheless, given the difficult negotiations, there are concerns that this may not be the end of the story for Canada. In any case, this is likely to have a much greater impact on the Canadian dollar (CAD or loonie) than a slightly stronger labor market, according to Commerzbank.