Canada’s housing starts in November were seasonally adjusted to 254,100. This number is higher than the expected 248,000. This stronger housing start figure indicates that the Canadian economy is performing better than many had thought. With 254,100 new units, it seems that demand for housing remains strong, even with the higher interest rates we’ve faced in recent years. This makes it difficult for the Bank of Canada to justify lowering interest rates anytime soon.

Inflation And Housing Starts

It’s important to look at this data alongside the inflation report from October 2025, which showed the Consumer Price Index (CPI) at 2.8%. This is significantly higher than the Bank’s target of 2%. Increased construction activity could drive up wages and the costs of materials, raising inflation concerns for the Bank of Canada. As a result, markets might start to reduce the chances of a rate cut in the first quarter of 2026. For those trading interest rate swaps and CORRA futures, the best approach now is to prepare for a “higher for longer” interest rate scenario. We observed a similar pattern in 2023, where strong economic reports delayed expectations for changes from the central bank. This could mean selling futures contracts that bet on a rate cut in March 2026 or buying options that profit if rates stay the same through the winter. This economic strength is positive for the Canadian dollar, as a more aggressive Bank of Canada typically attracts foreign investment. Recently, the Canadian dollar (loonie) has struggled against the US dollar, sitting around 1.37, but this data gives a solid reason for improvement. We might consider buying CAD call options or selling USD/CAD call options in anticipation of a drop to around 1.35 in the upcoming weeks.

Impact On Equity And Currency Markets

In the equity market, this news is beneficial for sectors like homebuilders, material suppliers, and major banks, making call options on related ETFs more appealing. However, the potential for continued high interest rates could negatively impact the broader TSX index, especially in growth and technology sectors. This suggests a smart strategy could be to invest in financials while hedging with put options on the overall market. Create your live VT Markets account and start trading now.

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