Intelligent Investment
A Rapid Repricing Of Risk
Canada Monthly Market Commentary - March 2026
March 31, 2026 2 Minute Read
Volatility grips financial markets as the Middle East conflict continues to spike oil prices. With the effective closure of a major channel for global oil flows and threats against the energy infrastructure of the region, surging oil prices have revived concerns of another cycle of high inflation. Despite coordinated efforts to stabilize supply with the release of a record volume of emergency oil reserves, oil prices remain high and threaten global economic growth. Outlooks from just a few weeks ago are being reset and the longer the conflict goes on, the more the risks become real. In the OECD’s latest economic outlook report, the organization warns that the conflict may erode the global economic resilience and momentum from 2025.
For interest rates, the prevailing consensus last month was for the Bank of Canada to hold throughout 2026. But since then, the upside risks to inflation and downside risks to economic growth have both increased considerably. This has left the market divided on Canada’s interest rate path. While the Bank of Canada held the policy interest rate at 2.25% and reiterated a data-dependent stance in this month’s monetary policy decision, traders have now priced in two to three rate hikes this year beginning as early as July. On the other hand, economists generally still expect interest rates to remain flat in 2026 as the Bank of Canada intends to “look through” the near term impacts of the oil price shock.
Meanwhile, bond yields have also jumped, materially impacting the cost of debt and mortgage rates. The Canada 5-year bond yield surged to over 3.2% this month, rising as much as 60 basis points in just a few weeks. The Canada 10-year bond increased as much as 45 basis points to an eight-month high of 3.6%.
Complicating matters further, all this volatility is occurring at the same time that Canada’s economic growth appears to be weaker than anticipated. In Q4 2025, GDP unexpectedly contracted by an annualized 0.6% and employment fell by 83,900 jobs in February. Then there are also the structural changes to factor in with Canada’s trade relationships and slower population growth. But overall, it is still too early to know the full implications for Canada’s economy and much hinges on how long the Middle East conflict lasts. With today’s markets being extremely reactive to new developments and escalations, volatility will remain heightened in the meantime.
Economic Highlights:
- Employment falls by 83,900 jobs in February 2026 as the unemployment rate rises 20 bps to 6.7%.
- Headline inflation decreased to 1.8% in February 2026 and the core measures of CPI-Trim and CPI-Median both eased to 2.3%.
- Canada’s population declined for the first time on record by an estimated 103,500 people in the year from October 1, 2025 to January 1, 2026.
Viewpoints:
- War knocks global economy with dual shock to growth and prices
- OECD: Iran war erases global growth upgrade, fans inflation
- BoC holds benchmark rate at 2.25% amid oil price shock
- Where are Bank of Canada rates headed? Economists and traders are at odds
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