Canada: GDP forecasted to rise by a healthy 0.2% m/m in February - TDS

The analysis team at TDS suggests that the Canada’s industry-level growth is forecast to rise by a healthy 0.2% m/m in February after a robust start to the quarter (0.6% in January).

Key Quotes

“We look for goods-producing industries to drive the moderation, led by a pullback in manufacturing and a weather-related drag from utility output. Oil extraction and construction should continue to firm albeit a softer pace than in January. On the services side, we expect some deceleration driven by minor corrections in retail and wholesale trade and in line the weaker trend in hours worked. Our forecast would lend upside risk to our Q1 GDP tracking toward the upper range of 3%, though not a game changer for the Bank of Canada who has already penciled in a relatively bullish 3.8%.”

“Foreign Exchange

• The simultaneous release of the US and Canadian reports will muddy the signal from the Canadian GDP release. The market expectations for the US report show a nearly 50bp standard deviation with a 25 range in the Bloomberg consensus. The lean is for a softer report with 1% probably the sticking point for a decent number. While this report is highly volatile, backwardlooking, and prone to revisions, a softer headline is likely to weigh on the greenback. This comes of the heels of the Trump tax policy announcement that was lacking details and in turn unlikely to provide much support to the dollar in the nearterm.
• At the same time, we look for an above consensus print on the Canada side, suggesting further consolidation in USDCAD. Indeed, we believe that the NAFTA premium getting built into the pair is overdone and is disproportionate to the risks of a possible trade war, leaving us to fade the rally in USDCAD ahead of 1.3650. Our preferred trade is to sell AUDCAD, owing to stretched valuation, a shift in terms of trade and extreme levels of positioning.”