The Bank of Canada held its policy rate at 2.25 per cent in its final decision of 2025, a move that typically supports a currency after a long easing cycle. The loonie has firmed modestly, but broader economic and structural headwinds continue to limit its upside.
BNN Bloomberg spoke with Steve Kulchyk, vice-president of options dealing and structured products, who says the currency’s gains are constrained by trade frictions, weak housing fundamentals and uncertain investment flows into Canada, even as corporate and institutional hedgers adjust to ongoing volatility.
Key Takeaways
- The Bank of Canada’s pause at 2.25 per cent offers short-term support for the loonie, but longer-term upside remains constrained.
- Tariffs, housing pressures and uncertain infrastructure investment continue to weigh on Canada’s ability to attract international capital.
- Corporate treasurers are increasing hedge ratios and moving away from short-volatility strategies as FX volatility remains elevated.
- Firms are favouring swaps, forwards and long-vol options to manage risk, particularly as implied volatility lags realized volatility.
- Institutional investors are keeping to rolling and swap-based hedging in G-10 currencies, while turning to option-based models where emerging-market carry costs are high.
Read the full transcript below:
ANDREW: The Bank of Canada is holding steady in its interest rate decision — the last one of 2025. It kept the overnight rate at 2.25 per cent. What could this mean for our currency? Usually, when a central bank holds off from cutting rates, it supports a currency. We’re joined by Steve Kulchyk, vice-president of options dealing and structured products at Monex Canada. Thanks very much for joining us. Just remind us: what is Monex Canada? What do you do?
STEVE: Absolutely. Monex Canada is an international brokerage. We work generally with corporates and institutional companies that are looking to manage their risk, deal with payments and exchange currencies.
ANDREW: What is your view on the Canadian dollar? It has had something of a rally against the U.S. dollar lately.
STEVE: Yeah, the hold from the Bank of Canada yesterday certainly helps support the loonie. The one thing about the long term, though, is the fact that structurally we’re looking for reasons why people will want to invest in Canada. So from a Canadian dollar strength perspective, I still think it’s a little bit limited for a big run to the upside against the U.S. dollar, especially. But tariffs are going to play a really big role in that moving forward.
ANDREW: Do you think there’s going to be a cloud over Canada because of the tariffs?
STEVE: Because of the tariffs — and the housing market is not helping as well. When you’re looking at any sort of central bank movement and how a currency is going to react, you want to know that the currency also has a reason to be invested in. Structurally speaking, from a housing market perspective, from infrastructure and on the industrial front, I’m still waiting to see if we can find that reason for international investors to come into Canada before I can call for a big Canadian dollar move to the upside.
ANDREW: But the federal government is going all out to try to stimulate private-sector infrastructure investment. But you say we’ve yet to see how the cake turns out.
STEVE: We still need to see what happens. I think it’s too soon to make a directional call on that.
ANDREW: Tell us how corporate customers — people who actually need to use foreign currencies — have been managing their exposure.
STEVE: Sure. It really all depends on how they’re pricing. If they’re using a budgeted-rate approach, what we’re seeing is they’re setting a budget rate for the year and asking: what am I going to set my pricing on? For a lot of those companies, just because of the volatility we’ve seen over the last two years, they’re starting to increase their hedge ratios. And with a lack of implied—
ANDREW: Sorry — you went into a bit of jargon there.
STEVE: Sorry.
ANDREW: What do you mean by increasing hedge ratios?
STEVE: They’re starting to hedge a little bit more of what their expected cash flows are for the year than they normally would have done. So, for instance, let’s say there’s a company that is going to be doing $20 million in foreign exchange for the year and it’s going to be equally priced out over time. They’re now hedging 60 to 70 per cent instead of the 30 to 50 per cent they would have done before, simply because it’s been so volatile.
ANDREW: And obviously, if you’re an exporter earning foreign currency, a rise in the Canadian dollar hurts you.
STEVE: Yeah, and a lot of these companies can’t change their pricing. So what they’re doing is increasing those hedge ratios. We’re also seeing them move away from short-volatility products. Implied volatility hasn’t really kept up with realized volatility, so shorting vol is not giving the returns we would have seen this time last year.
ANDREW: So what kind of hedging do they do — swaps?
STEVE: They’re doing a lot of swaps, a lot of forwards, and a lot of long-vol products on the options front — vanillas and some binaries — to offset any potential margin calls.
ANDREW: When you talk to clients, they’re uncertain, as you mentioned?
STEVE: Yeah, absolutely. It’s a coin flip.
ANDREW: What about investment-industry clients? What are they doing? They might have big portfolios of foreign stocks, for example.
STEVE: Absolutely. And it depends on where their portfolios lie. When we’re looking at equity portfolios and investment firms, they’re starting to do the same thing — keeping with the rolling-forward and swaps approach. They may play around with their hedge ratios, but that’s as fancy as they get. On the emerging-market front, though, they do need to get a little fancier. Implied volatility is very high, but carry is very high in these currencies as well.
ANDREW: Meaning interest rates — the exact borrowing cost.
STEVE: Exactly. So the cost of carry is so high that if you were to put on a forward or a rolling strategy, you’re effectively locking in losses.
ANDREW: Can you remind us — we heard concerns a couple of weeks ago that after Japan finally let interest rates move up, the global carry trade would erode. Has that come to pass?
STEVE: Not in currency markets just yet. We’ve seen a bit of a reaction in the yen, but I think it’s still tough to see what’s going to happen on that front.
ANDREW: Because for decades that’s been a cheap source of funding for people with an international perspective.
STEVE: Absolutely. So they might be going elsewhere in the medium to longer term.
ANDREW: I’m just looking at the Canadian dollar versus the euro. It’s around $1.61 to buy a euro. We strengthened a bit — in mid-October it would have cost $1.64.
STEVE: Absolutely. And a lot of our importers purchasing euros for inventory are seeing this as a buying opportunity. This time last year, this would have been an extremely high rate. So I think a lot of people, when it comes to the euro, are starting to reconsider what a good rate actually looks like against the Canadian dollar.
ANDREW: But we have weakened — we’re about $1.62 now to buy a euro. Even at the end of 2024 it was less than $1.49. So we have weakened. I guess we’ve been dragged down by the U.S. dollar this year?
STEVE: Dragged down by the U.S. dollar — absolutely. We sort of work in tandem with the U.S. dollar, but at the same time, the ECB ended its cut cycle earlier, so it had the benefit of hindsight. But now, when we look at the Canadian dollar, a lot of people hope that now that the Bank of Canada has said, “Let’s pause. Let’s wait and see what happens,” the Canadian dollar can rebound against other currencies it has underperformed against.
ANDREW: And just finally — crypto or blockchain. Has that been coming into your business much?
STEVE: It hasn’t. We’ve seen a little bit on the payments front where people are using blockchain-based payment rails, but not necessarily in the Monex business yet. Stablecoin is the buzzword out there, but we haven’t seen it affect the industry yet.
ANDREW: So the adoption is not head over heels. People are being cautious.
STEVE: Exactly. There are still a lot of questions that need to be answered, specifically from a corporate front. There are a lot of people out there who are still not sure about the technology.
ANDREW: Steve, thank you very much.
STEVE: Thanks for having me.
ANDREW: Steve Kulchyk, vice-president of options dealing and structured products at Monex Canada.
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This BNN Bloomberg summary and transcript of the Dec. 11, 2025 interview with Steve Kulchyk are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
