TD economist Marie Solovieva warns that net financial flows remain strong but foreign direct investment softens amid trade uncertainty
Canada’s financial relationship with the United States remains firmly intact, even as signs of strain emerge in longer-term investment commitments, according to a new analysis from Maria Solovieva, CFA, at TD Economics.
Reviewing Canada’s financial account activity through the third quarter of 2025, the economist finds that the US continues to dominate as the primary destination for Canadian capital. Outbound financial flows to the US are on track to reach approximately C$255 billion by year-end, equivalent to about 8% of Canada’s GDP.
If realized, this would mark the ninth straight year in which Canada has been a net lender to its southern neighbour. “Shifts in trade flows between the US and Canada have been stealing most of the spotlight so far during Trump 2.0. An equally important question is to what extent – if any – the path of financial flows has been altered between the two countries,” said Solovieva.
Much of this cross-border activity has been driven by portfolio investment rather than direct ownership stakes. Canadian investors allocated roughly C$200 billion to US securities during the first nine months of 2025, well above the same period last year, which itself set a record.
About two thirds of these flows were directed toward US debt instruments, supported by relatively attractive yields as US interest rates stayed higher than those in Canada following Bank of Canada easing. “Shifts in trade flows between the U.S. and Canada have been stealing most of the spotlight so far during Trump 2.0. An equally important question is to what extent – if any – the path of financial flows has been altered between the two countries,” said Solovieva.
Net Canadian purchases of US equities reached about C$64 billion through the third quarter, surpassing the total for all of 2024, though still below the extraordinary levels seen in 2021. Investor interest in large US technology firms has continued, even as Canadian equities delivered stronger returns once currency effects were taken into account.
“Shifts in trade flows between the U.S. and Canada have been stealing most of the spotlight so far during Trump 2.0. An equally important question is to what extent – if any – the path of financial flows has been altered between the two countries,” said Solovieva.
Capital has also flowed strongly in the opposite direction. US investors are on pace to invest more than C$150 billion in Canadian debt markets in 2025, the highest annual total on record. At the same time, investment from other foreign sources into Canadian debt has declined, reinforcing the central role of the US in Canada’s financial ecosystem.
“Shifts in trade flows between the U.S. and Canada have been stealing most of the spotlight so far during Trump 2.0. An equally important question is to what extent – if any – the path of financial flows has been altered between the two countries,” said Solovieva.
Canadian direct investment into the US has slowed significantly compared with last year and is tracking toward its weakest annual performance since 2009. A sharp reduction in mergers and acquisitions activity has been a key contributor. US direct investment into Canada also declined year over year, though inflows remained positive overall.
Despite this softness, there are early indications of diversification. Direct investment from non-US countries into Canada increased during the period, and Canadian direct investment abroad also showed growth outside the US Solovieva points to new and proposed foreign investment agreements as part of a broader effort to reduce Canada’s reliance on a single partner.
