Canada: GDP is forecasted to rise by 0.1% in August - TDS

Analysts at TDS suggest that Canada’s industry-level GDP is forecasted to rise by 0.1% in August, led by a rebound in the manufacturing industry and they see upside risks for a 0.2% print.

Key Quotes

“Retooling shutdowns at motor vehicle assembly plants single-handedly shaved nearly 0.1% from GDP in July and a partial rebound will provide a tailwind to growth in August. Outside of the manufacturing industry, growth conditions are far more mixed. Energy output may see a modest gain but utilities are likely to be a drag due to weaker demand caused by unseasonably cool weather.”

“The services sector will be weighed down by a pullback in retail sales though broadening job growth suggests activity continues to increase. Our forecast for a 0.1% increase is consistent with Q3 growth in the low-to-mid 2% range, which presents upside risks to the Bank of Canada's 1.8% projection from the October MPR. However, with the Bank focused on the supply side of the economy, we do not expect a modest upside surprise on GDP to change their bias and look for the next rate hike to come in January.”

“Foreign Exchange

• While a 0.1% m/m read would imply a Q3 GDP tracking estimate moderately above the BoC’s MPR forecast, we nonetheless think that the bar for incremental CAD gains is much higher with the front-end of the curve pricing in a non-trivial chance for a January hike and with IMM data pointing to an overhang of CAD longs. Against this backdrop, we think risks around CAD are asymmetric and more vulnerable to data disappointments than an upside surprise particularly as correlation studies indicate a tight relationship with spot FX at this juncture.
• Against this backdrop, a stronger monthly GDP print could introduce some but only limited downside on USDCAD, especially with the Fed Chair decision still at large. Sustained downside will likely require renewed pressure on the USD-leg. Supports come in at 1.2780 (August highs and post Oct-MPR lows). 1.2860 is a key pivot followed by 1.2920 and 1.2970/1.3000 as notable resistance points.”