Canada: GDP growth likely to advance by 0.2% in April - TDS

Canada’s industry-level GDP growth is forecast to advance by 0.2% in April and analysts at TDS are looking for growth to be driven by both goods and services while a slowdown in housing activity should take some shine off.

Key Quotes

“The latest data on housing resale activity and SEPH (payrolls) employment both support this theory and point to downside risk in that industry. Goods sector output should be constrained by a sharp deceleration in residential construction. Meanwhile, services could feel an impact from the drop in resale activity. Elsewhere, GDP growth will be underpinned by an increase in manufacturing activity, consumer spending, and utilities output. Shutdowns at an oil sands upgrader will continue to weigh on nonconventional oil production but this should be offset by the ongoing recovery in oil and gas support services, which are up nearly 65% y/y.”

“Our forecast for a 0.2% monthly increase in industry level growth is consistent with Q2 growth near 3%, which should leave the Bank of Canada comfortable with the "sustainable" performance in the wider economy as they look to remove the 2015 insurance cuts in the coming months, most likely in October.”

“Foreign Exchange

Market positioning into the GDP release will likely set the tone for the FX reaction. Indeed, CAD has been the best performing currency in the G10 in the month of June. This coupled with a break of some significant technical levels has probably led to some rule-following models to chase the rally, fueling some of the downside momentum in USDCAD. Still, our hedge fund positioning tracker shows that the level of existing CAD shorts is more balanced than the CFTC data implies. Meanwhile, growth momentum may also begin to fade as consensus expectations of 2017 GDP have already shifted 70bp from 1.8% in January to 2.5% now. Thus, we think much of the good news is getting priced in CAD and look for USDCAD to start to form a base around 1.30 over the next few weeks.”