Canada’s GDP dipped by 0.1% in May, which was as expected. The previous month also saw a 0.1% decline. A preliminary estimate for June suggests a small GDP growth of 0.1%. The goods-producing industries faced challenges, mainly because of a slowdown in mining, quarrying, and oil and gas extraction, even though manufacturing showed some growth.

Services Producing Industries

The services-producing industries stayed mostly steady. Within this group, real estate, rental and leasing, and transportation and warehousing sectors grew. However, retail trade and public administration faced declines. Out of 20 sectors, 7 grew in May. The date today is 2025-07-31T14:55:44.645Z. These two months of slight economic drop and a weak June estimate suggest that the Canadian economy is stalling. This supports the idea that the Bank of Canada will keep cutting rates, as it began to do in June and July this year. Derivative traders should prepare for lower interest rates in the months ahead.

Economic Outlook

This sluggish trend matches recent statistics. The June 2025 Consumer Price Index (CPI) showed inflation dropped to 2.8%, while the latest Labour Force Survey revealed the unemployment rate rose to 6.2%. These numbers give the central bank a strong reason to lower rates further to boost the economy. Given this situation, the Canadian dollar may come under more pressure. The USD/CAD exchange rate has risen from about 1.35 in spring to over 1.38 now. Traders might consider buying call options on USD/CAD to prepare for further weakness in the Canadian dollar. The bond market reflects this outlook. Canadian two-year bond yields, which fell below 3.5% after the last rate cut, will likely continue to decrease. Traders should think about buying bond futures or using interest rate swaps to bet on lower short-term yields. The report’s details suggest a pairs trading strategy in equity derivatives. The ongoing weakness in the oil and gas sector, indicated by Western Canadian Select crude prices nearing $70 a barrel, makes put options on energy sector ETFs appealing. In contrast, the surprising strength in manufacturing may make selling puts on select industrial stocks a good strategy. Create your live VT Markets account and start trading now.

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