Canada’s foreign portfolio investment in Canadian securities was -$5.57bn in December. This was below the expected $14.27bn.
The result indicates a net outflow of foreign funds from Canadian securities during the month. The gap versus the forecast was $19.84bn.
Shift In Foreign Investor Sentiment
We are seeing a significant shift in sentiment against Canadian assets. The report of a $5.57 billion net outflow of foreign portfolio investment for December 2025, when a $14.27 billion inflow was expected, signals a major reversal. This is the largest capital outflow we have witnessed in over 18 months and suggests foreign investors are losing confidence.
This data is a clear bearish signal for the Canadian dollar. With less foreign demand for CAD to buy local securities, we expect the currency to weaken further against the US dollar. The USD/CAD exchange rate has already climbed to 1.3850 in early February 2026 trading, and we see potential for it to test the 1.40 level in the coming weeks.
Traders should consider buying US dollar call options or directly shorting Canadian dollar futures. Implied volatility on CAD options has already ticked up to 8.9%, reflecting the market’s growing uncertainty. This strategy allows for profiting from or hedging against an expected decline in the loonie’s value.
This capital flight also puts direct selling pressure on Canadian equities. The S&P/TSX Composite Index, which saw foreign inflows support its rally throughout much of 2025, is now vulnerable to a correction. We have already seen the index fall by 2.5% since the start of February, with financials and resource stocks being hit the hardest.
Buying put options on TSX-tracking ETFs provides a direct way to position for a potential market downturn. We will be watching for institutional selling in major Canadian banks and energy producers, which often serve as a proxy for foreign investor sentiment. A break below the 21,000 level on the TSX would confirm a bearish trend.
Historical Parallels And Oil Link
Looking back from our perspective in 2025, this movement has parallels to the 2014-2015 period when a collapse in oil prices triggered sustained capital outflows from Canada. That event caused a prolonged period of weakness for both the Canadian dollar and the stock market. Current WTI crude prices, hovering just below $70 a barrel, are adding to these concerns.
