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    In December, Canada’s merchandise trade deficit narrowed to $1.3B, beating expectations of a $2.1B shortfall

    by VT Markets
    /
    Feb 19, 2026
    Canada’s international merchandise trade balance posted a deficit of **$-1.3B** in December. This was better than the forecast of **$-2.1B**. That means the deficit was **$0.8B smaller** than expected. In simple terms, exports and imports were closer than markets had projected.

    Implications For Canadian Markets

    The stronger-than-expected trade result for December 2025 is a positive signal for Canada as we move into this year. A smaller deficit points to firmer economic activity than many investors had priced in. This may be a reason to revisit overly bearish positioning in Canadian assets. For FX traders, the data is supportive for the Canadian dollar. The CAD has already strengthened to about **1.33 per USD**, and this report could add momentum by pushing back against the “slowing economy” narrative. One way to express this view is to consider **short-dated CAD call options** for potential near-term upside. This also reduces the odds of an imminent Bank of Canada rate cut from the current **3.5%** policy rate. Markets had been leaning toward a cut by June, but with January inflation still at **2.8%**, the trade data adds support for the BoC to stay on hold. Pricing in interest rate swaps that assumes a near-term cut may now look too aggressive. The stronger fourth quarter of 2025 likely reflected firm commodity pricing, with Western Canadian Select oil averaging above **$70 per barrel**. If this holds, it should keep export values supported. That backdrop strengthens the case for derivatives linked to Canadian energy and the **S&P/TSX 60**.

    Positioning And Volatility Considerations

    A similar setup occurred in 2023, when stronger Canadian data led to a fast repricing of rate expectations versus the U.S. Federal Reserve. With that precedent, higher volatility in the weeks ahead is plausible. An options approach designed for a **range-bound but volatile USD/CAD** environment may be a practical way to position. Create your live VT Markets account and start trading now.

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