Canada’s foreign portfolio investment in Canadian securities totalled $4.62bn in March. This was below the expected $11.4bn.
The result indicates lower foreign buying of Canadian securities than forecast for the month. No further breakdown was provided in the statement.
The sharp miss in foreign investment for March suggests international investors are becoming hesitant about Canadian assets. This reduced demand for our securities directly translates into weaker demand for the Canadian dollar. We should therefore consider strategies that profit from a decline in the CAD against the U.S. dollar, such as buying USD/CAD call options.
This weak data clashes with the Bank of Canada’s recent stance, where it held its policy rate at 4.75% in April, citing sticky inflation. This growing disconnect between hawkish monetary policy and a softening economy often leads to increased market volatility. This environment makes options that benefit from price swings, like straddles on currency ETFs, potentially attractive.
Recent data reinforces this cautious outlook, as Canada’s first-quarter GDP unexpectedly contracted by 0.2%. Meanwhile, the U.S. economy remains robust, with the Federal Reserve signaling rates will stay higher for longer. This policy divergence is a classic catalyst for a stronger USD and a weaker loonie, a trend we can position for in the futures market.
This could also be a warning sign for our equity markets, as less foreign capital means less buying pressure for the TSX. We saw a similar dynamic in the second half of 2025 when a dip in foreign inflows preceded a 4% slide in the TSX Composite Index. Hedging our equity exposure by purchasing put options on broad market index ETFs appears to be a sensible move.
