Canada on the brink of recession?

It is expected that the ongoing decline in the price of oil and other commodities and the weakness in investment will continue to weigh on the performance of the Canadian economy and hurt the loonie, despite the better-than-expected retail sales print in May.

After the recent cut in the BoC's reference rate, the market will be following economic data to assess the possibility and timing of further easing. In that respect, the release of May's monthly GDP next week will be the focus of the market and will allow for a better assessment of the current state of the economy. 

"A disappointing GDP reading would most likely bring Canada into technical recession (after a first-quarter GDP decline of 0.6%), putting pressure on BoC to commit to further easing", says Barclays.

On the other hand, a GDP reading closer to BoC's projections would give the central bank some room to wait. Particular attention will be paid to non-resource exports and consumer spending, which the BoC hopes will help cushion the negative effects associated with the decline of Canada's terms of trade.