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Analysts at TD Securities are looking for Canada’s industry-level GDP to remain unchanged in July on weakness in the energy sector after power outages curtailed output from a large producer in the oil sands.

Key Quotes

“We had originally forecast a modest decline, but after strong wholesale data believe a flat print is more likely. The pullback in energy output will leave services to drive growth while manufacturing and utilities provide a modest offset.”

“We expect the BoC to look through such distortions ahead of the October meeting. The 1.5% forecast for Q3 from the July MPR indicates that they’ve already penciled in some downside for July and Senior Deputy Governor Wilkins recently said she expects growth to average 2% over H2, implying a rebound in Q4.”

FX: A possible downside miss in growth should be taken in context with our headwinds that have surfaced for the loonie. Mostly, we think that market pricing against the Fed is priced to perfection with a modest spread between the terminal rates of the US and Canada. A look at 2y, 5y and 10y spreads against the US argue that USDCAD should be trading around 1.31.

We still like holding core short CAD exposure to the European majors like EUR and NOK. Following the break of the 200dma, we could see CADNOK grind lower and maintain long EURCAD exposure through riskies.”