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Steller Canada GDP Report to Propel USD/CAD Pullback

Steller Canada GDP Report to Propel USD/CAD Pullback

2016-11-30 08:00:00
David Song, Currency Strategist
Share:

- 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?

For more updates, sign up for David's e-mail distribution list.

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.

What’s Expected:

DailyFX Calendar

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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

Release

Expected

Actual

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

Release

Expected

Actual

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.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

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

USD/CAD Daily

USD/CAD Daily Chart

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

(1 Hour post event )

Pips Change

(End of Day post event)

2Q

2016

08/31/2016

12:30 GMT

-1.5%

-1.6%

+2

-11

2Q 2016 Canada Gross Domestic Product (GDP)

USD/CAD 5-Minute

USD/CAD Chart

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.

Get our top trading opportunities of 2016 HERE

Read More:

Dollar Technical Analysis: DXY Polarity Point in the Making

S&P 500 Technical Update: Levels & Lines to Consider

Canadian Dollar Recovery to Fizzle If OPEC Fails to Deliver

EUR/USD Rallies as French Confidence Remains High Ahead of Next Primaries

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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