USDCAD: Looking Ahead to Thursday’s Canada GDP Data
Bank of Canada (BOC) Governor Stephen Poloz could have used his appearance at Jackson Hole to give markets a hint that the Canadian central bank was inclining towards a rate hike at its next meeting on September 5, but instead he stressed the need to take a gradual approach to interest rate increases. Given the BOC hiked in July that emphasis on ‘gradual’ might seem to rule out a further move in September. But markets aren’t totally convinced. While Canadian core inflation is at 2 per cent, in line with BOC expectations, headline inflation is up at 3 per cent. Second quarter Canadian GDP data will be released on Thursday at 1330h UK time. On an annualized basis the BOC’s July Monetary Policy Report was forecasting this number to be an increase of 2.8 per cent. Ahead of the data the consensus among forecasters is slightly higher at 3 per cent but it might be worth noting that Canada’s Bank of Montreal (BMo) and Canada’s TD Securities are expecting increases of 3.3 and 3.5 per cent respectively. Additionally BMo noted that “a jumbo growth rate a year ago for Q2 [GDP] prompted the Bank of Canada to surprise many with a second consecutive rate hike the very next week, and [BMo] simply can’t rule out a repeat performance this time (either by GDP or the BoC).” If Canadian Q2 GDP does surprise on the upside, it might energize Canadian dollar (USDCAD) bulls given the proximity of next week’s BOC policy meeting.
by Neal Kimberley, External Currency Analyst.