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Canadian Dollar up Following June’s GDP Figure

The Canadian Dollar managed to shrug some trade and NAFTA driven pressure this week following the monthly GDP which showed good signs of life demonstrating 0.1% growth against the expected flat figure of 0.0%. The positive number added to the likelihood of a Canadian interest rate rise in July.

Canadian flag and skyscrapers

Canadian economy in better shape despite adverse weather

In April, Canada was hit by the adverse weather which could have jeopardised the latest growth figure. However, the economy demonstrated resistance to post better than expected figures, with many experts now advising that the figure could have been more compelling if not for the weather.

Retail was most affected by the cold weather which saw blasts of ice across central and eastern Canada. The sector falling 1.3% due to weather, another area of the economy which also saw a decline was concretion which fell by 0.5%

Other areas of the Canadian economy proved more resistant, manufacturing grew by 0.8% with chemical, machinery and food production all supporting the Canadian economy.

On an annualized basis the Canadian economy grew by 2.5% the slowest rate since February 2017.

The economic data Poloz was waiting for?

Just days before the Canadian GDP data Stephen Poloz stated that economic data would drive rate change rather growing trade and political tensions.

Related:  CAD/USD Exchange Rate Hits A Two-Month High Following Governor Poloz’s Hint On Interest rates

As tensions between Canada and the US continue the Bank of Canada Governor was clear to state that trade wouldn’t be the defining factor. Instead of highlighting that the economy was now seeing inflation levels at the ideal 2% which paved the way for future interest hikes.

In addition to, Poloz stated that the support that low interest rates had provided the economy was arguably no longer needed.

“The way we think of this is that the economy is operating very close to its capacity and inflation’s on target, so we’re more or less what I’ve described as ‘home’ in other speeches,”

Continuing, Poloz said:

“And the thing that looks odd in that picture is that interest rates are still very low by historical standards.”

July rate hike possible

Just days ago, the probability of a Canadian interest rate rise stood at just 67% as trade fears dominated the landscape, the likely hood now stands at approximately 80%. Opinions on weather the BOC will rise rates remain divided. Although Poloz has focused on economic data NAFTA and talk of a trade war still remains a huge risk to the economy.

Poloz stated that trade tariff policies would be taken into account before the interest rate decision on July the 11th therefore leaving himself the freedom of choice if there are any further developments. Regardless its clear that the BOC want to raise rates as quickly as is possible with many of the economic data indicating that they can.

Related:  Canadian Dollar Exchange Rates Tumble as Retail Sales and Inflation Disappoint

Canadian Dollar trades higher

CAD had been under pressure for a significant amount of time, however, a reversal was seen following the GDP data release with USD/CAD falling from 1.3261 to 1.3155 in total the pair lost approximately 0.9% in Friday’s trading session.

USD/CAD exchange rates chart for July 7, 2018

The Canadian Dollar also gained against the bludgeoned Pound with GBP/CAD falling from 1.7432 to 1.7351 a trend which could well continue if consensus leans towards a July interest rate hike.

GBP/CAD exchange rates chart for July 7, 2018

Canadian Dollar forecast

As a key driver for currency appreciation GDP accompanied by supporting rhetoric from a central bank will bode well for the Canadian dollar. NAFTA despite being played down remains a huge risk for Canada and could definitely make a dent in future GDP data. This being said Trump’s stance may soften, and compromise found which would allow the issues surrounding trade to be resolved.

Markets may now start pricing in a potential rate rise providing upcoming data such as Employment figures, trade balance and Unemployment rate data meets or exceeds the target. The highlighted data is all released on the 6th, either way, expect movement.

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