In June, Canada’s manufacturing sales increased by 0.3%, reaching $68.5 billion. This comes after four months of decline.
Sales in 13 out of 21 subsectors went up, with the petroleum and coal subsector rising by 11.8% and the food subsector by 2.5%. These gains were partially counteracted by a 5.0% fall in the transportation equipment subsector.
Year Over Year Comparison
Compared to the same month last year, total manufacturing sales in June were down by 2.7%.
We’re seeing that the June manufacturing sales data, which missed expectations, points to a fragile Canadian economy. Although there was a slight monthly increase, it followed four months of declines and the year-over-year figure is still negative at -2.7%. This confirms the economic slowdown we have been monitoring throughout 2025 is continuing.
This weak report, especially when combined with the latest jobs data showing unemployment ticking up to 6.2%, makes a Bank of Canada rate cut more likely. We should consider positioning for a more dovish BoC at their September meeting, as the case for holding rates at current levels weakens. Traders can express this view by looking at options or futures that bet on lower overnight rates by the end of the year.
Impact on Currency and Trade
Consequently, we expect further weakness in the Canadian dollar against the US dollar. The interest rate differential is likely to widen in favor of the USD, a trend we saw develop through late 2024 as the US economy showed more resilience. Buying USDCAD call options or futures could be a direct way to trade this expectation over the next several weeks.
The data also reveals a clear split in the economy, with strength in petroleum but significant weakness in transportation equipment. This suggests defensive positioning in stock index derivatives might be wise, possibly combined with bullish plays on the energy sector through options on relevant ETFs. The 5.0% drop in transportation equipment could signal bearish opportunities in auto parts and related industrial stocks.
