The Bank of Canada’s most recent Business Outlook Survey reveals that business sentiment is still low, but concerns about a recession have eased. This survey, conducted in the last quarter of 2025, shows that while confidence among businesses is limited, it is better than the dip seen earlier this year.

Trade and Export Sales

Many businesses reported slow sales growth over the past year, mainly due to trade tensions. However, they anticipate a slight improvement soon. Growth in export sales is expected to be modest, with some companies seeing increased sales in markets outside the U.S. due to ongoing tensions with the U.S. Most companies have not faced significant capacity issues or labor shortages. With demand likely to stay low, many plan to keep or reduce their staffing levels. Investment plans have improved a bit, mainly geared toward routine maintenance while navigating trade uncertainty. In contrast, the oil sector expects to cut back on investment in 2026 because of low oil prices. Pressure from tariffs has decreased since the last quarter, yet some challenges remain. Few businesses foresee major price increases. Inflation expectations are steady, between 2.5% and 3%. The latest survey indicates that the Bank of Canada may take a wait-and-see approach. With their next interest rate decision coming up on January 22nd, this lukewarm economic data offers little motivation for change. December’s Consumer Price Index (CPI) was 2.8%, fitting well within the stable range businesses expect.

Investment and Currency Outlook

This outlook suggests that short-term interest rates are likely to remain stable for now. We think using strategies that benefit from stable or slightly declining interest rates, like selling out-of-the-money call options on CORRA futures, could be beneficial. This approach is based on the assumption that a rate hike isn’t expected in the near future. The subdued economic forecast, especially the anticipated fall in oil investment, signals ongoing weakness for the Canadian dollar. Western Canadian Select oil prices struggle to rise, staying around $60, leaving a key source of support for the currency lacking. This trend aligns with what we observed in late 2025, where the USD/CAD exchange rate rose from 1.35 to 1.38, making the strategy of buying calls on USD/CAD still relevant. For equity markets, the outlook is mixed as reduced recession fears are counterbalanced by reports of weak sales growth and low demand. The recent increase in the national unemployment rate to 6.2% confirms what businesses indicated last quarter about their hiring and investment plans. This situation suggests the S&P/TSX 60 may trade within a specific range, making strategies like covered calls or iron condors on index options attractive for collecting premiums from low volatility. Create your live VT Markets account and start trading now.

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