Canadian economic growth unlikely to rebound significantly in Q3

The Canadian economy began this year on a strong footing, expanding 0.6 percent in sequential terms in the first quarter. But the growth contracted in the following quarter by 0.4 percent, owing to the downtime in oil production caused by the wildfires that were a huge drag on exports. But outside of the energy sector, exports remained sluggish as well.

Thus, the Canadian economy in the September quarter is unlikely to rebound as markedly as was anticipated earlier, noted Commerzbank in a research note. The Bank of Canada only projects a rise of around 0.8 percent sequentially. The expansionary monetary policy, along with government’s economic package is expected to underpin growth in the quarters ahead. However, in the wake of subdued exports, the central bank is worried that the Canadian economy’s competitiveness is worse than anticipated.

Meanwhile, the prospect for company investments continues to stay uncertain. Even if domestic consumption is developing in a decent manner, the central bank appeared wary in this respect at the October meeting and lowered its growth forecasts for this year to 1.15 percent.

The Canadian dollar had a weak start to this year due to renewed collapse of the oil price at the beginning of the year. But the currency has been able to gain certain ground since mid-January as the oil price has been recovering.

Given the weaker growth outlook with increased uncertainty, the Bank of Canada would maintain its accommodative monetary policy for some time, stated Commerzbank. As economic growth is expected to grow sufficiently in the second half of 2016, the key rates are unlikely to be cut further. Instead, the central bank is expected to wait for certain time before normalizing its monetary policy. The BoC is expected to hike its rate during the end of 2017, added Commerzbank.

The USD/CAD rose 0.3 percent to 1.3507 by 1015 GMT, within the sight of a high of 1.3524 hit on Wednesday, it’s highest since March 1.  At 10.00 GMT, the FxWirePro's Hourly Canadian Dollar Strength Index stood neutral at 63.0379 (lower than 75 represents neutral trend).