Insights 
VT 
Canada’s Exports Show Signs of Slowing Economy
Canada’s exports experienced a decline in August, moving from $61.86 billion to $60.58 billion. This decrease reflects ongoing challenges in international trade affecting Canada’s export market.
Economic conditions continue to evolve, and Canada’s trade performance is being monitored due to global economic factors and domestic policies. The reduction in exports could impact currency values and trade relationships, pointing to broader trends within the Canadian economy.
Given the August trade data showing Canadian exports falling to $60.58 billion, we see this as a sign of a slowing economy. This is the second consecutive month we have seen a decline, suggesting weakening global demand for Canadian goods. This trend is concerning as we head into the final quarter of the year.
The drop in export revenue directly impacts the Canadian dollar, and we’ve already seen USD/CAD climb from 1.35 to 1.37 through September. Looking back at similar periods of economic softness in 2023, a weak export environment consistently put pressure on the currency. We should therefore anticipate further weakness in the CAD against the US dollar.
Currency Strategy Amid Economic Shifts
In response, we should consider buying call options on the USD/CAD pair with expirations in December 2025. This strategy allows us to profit from a potential rise in the exchange rate while limiting our downside risk. The upcoming inflation report later this month will be a key catalyst for this trade.
Furthermore, Canada’s S&P/TSX 60 index is heavily weighted with export-sensitive sectors like energy and materials. Energy exports, making up over 20% of the total, have been strained by the recent drop in WTI crude prices to below $80 a barrel last month. This data suggests corporate earnings in these key sectors could disappoint in the upcoming quarter.
To position for this, we can look at purchasing put options on broad Canadian market ETFs. This provides a hedge against a potential downturn in the stock market driven by these major export-oriented companies. The next Bank of Canada interest rate decision will be crucial, as any dovish pivot could further influence our position.
