According to Royce Mendes, from CIBC, today’s GDP data didn’t provide any reason for the Bank of Canada to rush for a rate hike next week.
Key Quotes:
“Canada’s 2.9% growth rate over the second quarter does wash away concerns about Q1’s modest 1.4% pace (1.3% prior to revision). However, the first half only exceeded the Bank of Canada’s estimate of potential growth by a slim margin, and will therefore only nudge central bankers towards a rate hike in October, rather than doing anything to force their hand in September.”
“Today’s data didn’t provide any reason for the Bank of Canada to rush a rate hike next week given that trade negotiations are still a major question mark for the outlook. As a result, look for central bankers to hold off until October when they’ll have more clarity on the trade situation and will have a better picture of how the third quarter is unfolding. The flat reading in June, leaves early estimates for the third quarter tracking a roughly 1 ½% growth pace. But keep in mind the economy will be feeling the drag of that oil production outage for much of the quarter, a factor that will prove only transitory, and should be looked through when the Bank assesses the health of the Canadian economy.”
“While this was only a slight miss on the headline versus consensus, market positioning was likely skewed towards an upside surprise, given some expectations that quarterly GDP was set to exceed the monthly readings after undershooting for the past three quarters. As a result, the data has been positive for fixed income and negative for the Canadian dollar. Expectations for a September hike from the Bank of Canada have also been pared back.”
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