The S&P Global Manufacturing PMI for Canada rose slightly from 48.4 to 48.6 in December. However, this small increase still shows contraction in the manufacturing sector since the index remains below the neutral level of 50. Economic challenges continue to impact Canadian manufacturers. This information influences market expectations and policy choices, which could affect interest rates and growth predictions. Upcoming reports will be essential for understanding the future of Canada’s manufacturing industry. FXStreet will provide updates and expert insights.

December 2025 PMI Insights

The rise in the Canadian Manufacturing PMI to 48.6 for December 2025 is an important indicator. Although it shows improvement, the manufacturing sector remains in contraction for the fifth consecutive month, signaling economic weakness. This situation keeps attention on the Bank of Canada and the possibility of a future interest rate cut. We are closely watching for new inflation and employment data to further confirm this weakness. In late 2023, the Bank of Canada maintained its policy rate at 5.0% for a while, waiting for clear signs that inflation was under control before considering any changes. Now, with the new PMI data reflecting ongoing contraction, it seems the Bank might need to act sooner in 2026. Due to the uncertainty about when the Bank will make its next move, options on currency pairs like USD/CAD are looking attractive. The current situation is perfect for volatility strategies, such as buying straddles, which could benefit from a significant shift in the Canadian dollar, whether a rate cut happens soon or is postponed. Implied volatility for the Canadian dollar is likely to rise before the Bank of Canada’s next meeting on January 21st.

Opportunities in Derivatives

The ongoing softness in manufacturing also opens opportunities in equity derivatives. We are considering buying put options on ETFs that track the S&P/TSX Capped Industrials Index as a hedge against continued weakness in the sector. Traders should also keep an eye on interest rate futures, which now estimate about a 60% chance of a rate cut by April 2026—a prediction this PMI report is likely to support. Create your live VT Markets account and start trading now.

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