Steller Canada GDP Report to Propel USD/CAD Pullback
- Canada 3Q GDP to Rebound Annualized 3.4%- Fastest Pace of Growth Since 2014.
- Will the Bank of Canada (BoC) No Longer ‘Actively’ Discuss Additional Monetary Support?
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Trading the News: Canada Gross Domestic Product (GDP)
Canada’s 3Q Gross Domestic Product (GDP) report is anticipated to show the economy expanding an annualized 3.4% following a 1.6% contraction during the three-months through June, and a marked rebound in the growth rate may foster a larger pullback in USD/CAD as it dampens speculation for additional monetary support.
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Why Is This Event Important:
The BoC looks poised to carry its current policy into 2017 as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016,’ and Governor Stephen Poloz and Co. may show a greater willingness to gradually move away from its easing-cycle as the region remains ‘supported by accommodative monetary and financial conditions and federal fiscal measures.’ However, a dismal development may drag on the Canadian dollar and push the BoC to further insulate the real economy in 2017 as the central bank warns the ‘profile for growth in Canada is now lower than projected in July’s Monetary Policy Report (MPR).’
Expectations: Bullish Argument/Scenario
|Retail Sales (SEP)||0.6%||0.6%|
|Ivey Purchasing Managers Index s.a. (OCT)||56.0||59.7|
|Net Change in Employment (OCT)||-15.0K||43.9K|
The pickup in private-sector consumption accompanied by the ongoing improvement in the labor market may encourage a stronger-than-expected GDP print, and the dollar-loonie may continue to pare the advance from earlier this month should the report boost interest-rate expectations.
Risk: Bearish Argument/Scenario
|Building Permits (MoM) (SEP)||-5.8%||-7.0%|
|International Merchandise Trade (SEP)||-1.70B||-4.08B|
|BoC Senior Loan Officer Survey (3Q)||--||3.3|
Nevertheless, the widening trade deficit paired with the slowdown in building activity may drag on the growth rate, and a dismal GDP figure may produce near-term headwinds for the loonie as it fuels bets for additional monetary support.
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How To Trade This Event Risk(Video)
Bullish CAD Trade: Canada Growth Rate Rebounds Annualized 3.4% or Greater
- Need to see red, five-minute candle following the report to consider a short trade on USD/CAD.
- If market reaction favors a long loonie trade, sell USD/CAD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Bearish CAD Trade: 3Q GDP Report Disappoints
- Need green, five-minute candle to favor a long USD/CAD trade.
- Implement same setup as the bullish Canadian dollar trade, just in reverse.
Potential Price Targets For The Release
Chart - Created Using Trading View
- Broader outlook for USD/CAD remains constructive as it continues to operate within the upward trending channel carried over from the previous month, but the recent developments in the Relative Strength Index (RSI) highlights the risk for a larger pullback in the exchange rate as the oscillator fails to preserve the bullish formation from August.
- Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
- Interim Support: 1.2980 (61.8% retracement) to 1.3020 (50% expansion)
Check out the short-term technical levels that matter for USD/CAD heading into the report!
Impact that Canada’s GDP report has had on USD/CAD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
2Q 2016 Canada Gross Domestic Product (GDP)
Economic activity in Canada contracted an annualized 1.6% after expanding a revised 2.5% during the first three-months of 2016 as wildfires in Alberta sparked the largest slowdown since 2009. Despite the dismal print, the backward-looking data may have a limited impact on the monetary policy outlook as the Bank of Canada (BoC) appears to be in no rush to cut the benchmark interest rate from the record-low of 0.50%, and the central bank may largely endorses a wait-and-see approach over the remainder of the year. The Canadian dollar edged lower following the weaker-than-expected GDP print, but the market reaction was short-lived, with USD/CAD pulling back from 1.3146 to end the day at 1.3103.
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--- Written by David Song, Currency Analyst
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