CANADA GDP PREVIEW: ECONOMY EXPECTED TO HAVE RESUMED EXPANSION IN Q4

• Canadian GDP is expected to have expanded by 0.8% YoY in Q4.
• Bank of Canada sees GDP coming in flat on an annualized basis
• The Canadian Dollar seems to have embarked on a range-bound theme.

The release of the Canadian GDP Growth Rate will be the salient event on the domestic calendar later in the week. According to Statistics Canada, the economy is expected to have expanded 0.8% during the October-December period compared with the same period a year earlier.

Canadian GDP could bolster the cautious stance from the BoC

Following the annualized 1.1% contraction recorded in Q3 2023, the Canadian economy is predicted to have performed very well in the latter part of last year, growing by 0.8% and prompting the BoC to maintain its prudent monetary policy stance.

On the latter, it is worth mentioning that the central bank left its policy rate unchanged at 5.00% at its January 24 event. At that meeting, the BoC suggested that the GDP Growth Rate is now estimated at 0.0%. In case the GDP readings match markets’ consensus, the central bank could maintain intact rates for its fifth consecutive time at its March 6 gathering.

Following its latest monetary policy meeting, the Bank predicts gradual economic growth in mid-2024, with household spending likely to increase in the latter half of the year. Exports and business investment are expected to be boosted by recovering foreign demand, while government spending is expected to contribute significantly to growth throughout the year. That said, the bank predicts GDP growth of 0.8% in 2024 and 2.4% in 2025, which is consistent with its October forecast.

According to analysts at the National Bank of Canada (NBC), “Monthly reports published to date suggest a healthy increase in household consumption in the quarter was only partially offset by a contraction in business investment in both the machinery/equipment and structures segments.”

When will the GDP Growth Rate be released, and how could it affect USD/CAD?

Statistics Canada is set to disclose the GDP figures at 13:30 GMT on Thursday.

Regarding USD/CAD, a positive surprise might lend legs to the Canadian Dollar, leaving the door open to a potential knee-jerk reaction in the short-term horizon. However, such a move should be deemed temporary in the current context where the pair’s price action is almost exclusively driven by USD dynamics. Those dynamics are a consequence of alternating speculation over the potential timing of the Federal Reserve’s (Fed) easing cycle.

FX Street’s Senior Analyst Pablo Piovano notes: “So far, USD/CAD appears side-lined around the critical 200-day SMA near 1.3480. The breakout of this range should expose the so-far 2024 peak at 1.3586 recorded on February 13.”

Piovano adds: “In case of bearish attempts, the 55-day SMA around 1.3430 should offer provisional contention prior to the late January low of 1.3358 (January 31). Once this region is cleared, there are no support levels of note until the December 2023 low of 1.3177, seen on December 27.”