The odds of the Bank of Canada cutting rates are falling with today’s stronger than expected jobs report, economists say.

Commenting on today’s employment report, TD Bank says that wage growth has accelerated in stride with the strong job market this year to 4.2% – the highest level since 2001. “From the Bank of Canada’s perspective, this isn’t a positive development, as it has the potential to create wage-push inflation amidst tight labour markets. This factor becomes ever more disconcerting within an economy that is already deemed to be running in excess demand,” it says.

“Meanwhile, CPI inflation has been holding above the Bank’s 2% target for the past year and, by our estimation, is unlikely to return to that target until mid-2009. These are among the reasons why we have been a dissenting voice in the markets, arguing that the Bank is more likely to raise than cut rates by year end,” it says.

TD says that prior to the jobs report, markets had fully priced in one cut by the central bank by January of next year and these odds have since been reduced to about 70%. “In our opinion, more needs to be done to further scale back expectations,” it adds.

“For monetary policy, this report feeds into the Bank’s concern that ‘household demand in Canada could be stronger than anticipated’ and argues against the Bank lowering the overnight rate at its October 16 rate setting,” notes RBC Capital.

BMO Nesbitt Burns says that conditions will keep the Bank of Canada firmly on hold through the end of this year, if not even longer. “It’s tough to see what is going to restrain the loonie’s rampage now,” it says.

“A strong domestic economy (and evident wage pressure) means the Bank of Canada is in no rush to join the Fed in lowering rates, with Canada’s central bank looking quite comfortable on the monetary policy sidelines,” says CIBC World Markets.

National Bank Financial says that, in light of the news, the scope for a rate cut in October has vanished. Indeed, it says that under normal circumstances this morning’s news would argue for the Bank to raise its overnight target rate toward 5%.

“However, these are not normal conditions. If one can argue that the stronger dollar and credit market conditions are now doing the tightening job for the Bank, Governor Dodge will have to be responsive to market developments in order to make sure monetary conditions do not drift one way or the other,” it says. “On that front, we still think that prospects for slower growth in the U.S. and a weakening greenback will force the Bank to let some steam out of the cooker at some point.” It still expects one 25 basis point rate cut before the year end.