Statistic’s Canada may have just won this month’s forecasting prize as July’s GDP comes in at 3.0% MoM, smack bang on their provisional estimate released along with the Q2 GDP report last month.
Given that economists’ expectations centred around this preliminary estimate quite heavily, today’s GDP release caused little market reaction for the loonie. The Canadian dollar showed a marginal flurry of strength in the aftermath of the data print with the loonie now the sole G10 currency sitting in the green against the greenback, but a big risk to this rally remains in today’s Department of Energy crude inventory release.
Both of today’s releases were a major risk for the loonie this morning as the path of least resistance is arguably higher for USDCAD in this current climate.
With July’s GDP data not highlighting distressing signs for the projection of the recovery heading into the recuperation phase, the next test for the loonie will come via oil markets. After yesterday’s API data showed a draw in crude but a build in gasoline inventories, which resulted in WTI falling below $40, the risks to today’s marginal rally are plentiful. For the loonie to continue ripping higher, both crude and gasoline inventories will need to show draws when the data is released at 15:00BST. Should this not occur, it is likely both CAD and WTI will be put under pressure by markets on concerns over the demand outlook.
POINTS ON THE GDP RELEASE ITSELF:
- July is arguably the last month of the strong recovery before the recuperation phase sets in. If today’s GDP data slipped below Statistics Canada’s 3% estimate released last month, the consequences would’ve been severe. Thankfully for the Bank of Canada, the GDP release printed bang on expectations, meaning their ammunition can be saved for when the economy starts to show signs of stalling later down the line as opposed to dealing with market distress.
- Statistics Canada now estimates that Augusts GDP will print at 1.0% MoM as the economic recovery transitions into the recuperation phase, whereby GDP data is likely to be preceded by a decimal point and highlight the sectors struggling to recover. By comparison, all 20 industries in July witnessed positive growth, with much of the expansion in economic activity being concentrated in manufacturing and accommodation & food services. While manufacturing has proven to be robust throughout the recovery globally, concerns over continued growth in the social consumption sectors are elevated, and for just causes.
- The manufacturing sector grew 5.9% in July, following a 15.1% expansion in June. Manufacturing activity remains around 6% below pre-pandemic ranges, the closest sector to fully recover. Activity in the accommodation and food services sector increased by 20.1% in July, but both remain 43% and 29% below their respective pre-pandemic levels.
July’s GDP data comes and goes with little reaction from USDCAD, but the loonie’s minor rally faces a risk in today’s DoE release
WTI is now the prime focus for the loonie after slipping back below $40 per barrel
Author: Simon Harvey, FX Market Analyst