Canada’s wholesale sales rose 2% month over month in December. This was slightly below the 2.1% increase that markets expected.
That is a 0.1 percentage point miss versus forecasts. No other details were included in the release information shared.
While the miss is small, it adds to signs that economic growth is cooling. Recent data points in the same direction: January inflation fell to 2.8%, below the Bank of Canada’s target range, and last month’s jobs report showed weaker-than-expected hiring. Together, these suggest last year’s momentum is fading faster than expected.
With this run of softer data, it becomes harder for the Bank of Canada to justify another rate hike at its March meeting. We now expect the Bank to hold rates steady and to shift its messaging toward a more neutral, or even dovish, tone. In a similar slowdown in late 2023, the Bank kept rates on hold for several months before later signaling cuts.
Based on this view, we are positioning for a weaker Canadian dollar in the coming weeks. USD/CAD has already moved from 1.34 to 1.36 since the start of the year, and we see room for more upside. We are considering buying USD/CAD call options expiring in April to benefit if the CAD continues to weaken.
In rates markets, traders are now pricing in a higher chance of cuts later this year. We are looking at Canadian Overnight Repo Rate Average (CORRA) futures as a way to position for a lower policy rate by the third quarter. This directly reflects the risk that the central bank will need to respond to a slowing economy.
On the equity side, slower growth can weigh on earnings, especially in consumer-focused sectors. We see value in buying put options on the S&P/TSX 60 index as a hedge against a potential pullback. Implied volatility is still fairly low, which makes protective puts a relatively cheap hedge for the weeks ahead.
here to set up a live account on VT Markets now
