“TD looks for a flat print on industry-level GDP for August, in line with observed weakness in activity data, although we see upside risks on a rebound in energy,” TD Securities analysts noted in a recently published article previewing the Canadian GDP report.
Key quotes
“Services should lead growth on further gains in real estate, which may be short-lived amid a recent pullback in home sales, and professional services while the goods sector should underperform. Residential construction will exert a drag on growth following a deceleration in housing starts while a decline in real manufacturing sales will provide another headwind to GDP. “
“However, a rebound in the energy industry will help to offset as oil sands production normalizes after an outage in July. While unchanged GDP might give the impression that data momentum is decelerating, we still look for Q3 growth to print near 2% after the strong handoff from June, which is slightly above projections from the October MPR.”
“A solid GDP report would offer a touch of support to the loonie. The knee-jerk on a good number could see USDCAD reverse part of the recent gains, though we would be inclined to fade a positive response. For starters, the loonie has priced in a fair bit of good news recently. Taking the cyclical factors into consideration, USDCAD HFFV sits at 1.32. That means we need the market to get a bit more excited about the prospects of a December rate hike.”
A string of positive data could nudge the market to higher odds of a Dec hike but market pricing is already there on the Fed’s side. Furthermore, any new shocks that might impact the US are likely to spill over into Canadian pricing as well, leaving terminal rate expectations in predictable ranges. Our prevailing view on USDCAD is to fade the extremes of the 1.28-1.32 range, leaving us vol sellers in the very short-run.”
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