Canada’s economy is expected to rebound in Q3

The release of the Canadian GDP growth rate will be a salient event on the domestic calendar on Friday. Markets expect the economy to have expanded 0.5% during the July-September period compared with the same period a year earlier.

Canadian GDP expected to recover after sinking in Q2

After shrinking at an annualised rate of 1.6% in the previous quarter, the Canadian economy looks to have bounced back nicely, with growth expected to land around 0.5%, which is right in line with what the Bank of Canada (BoC) had been looking for.

On a monthly basis, GDP is forecast to expand by 0.2% in September, recovering from a 0.3% decline in the previous month.

It’s also worth noting that the BoC delivered another 25 basis points rate cut on October 29, taking the policy rate down to 2.25%. During that meeting, officials revised their forecast, projecting growth of approximately 1.1% in 2026 and 1.6% in 2027, as the economy gradually stabilises.

According to analysts at TD Securities, “Q3 National Accounts provide the main risk event this week with another update on how economic activity has evolved into H2, with TD and the market looking for a partial (+0.5%) rebound from the 1.6% pullback in Q2.”

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

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

For USD/CAD, a stronger-than-expected result could give the Canadian Dollar (CAD) a brief lift. But any reaction is likely to be short-lived, given that the pair has been moving almost entirely to the rhythm of the US Dollar (USD) lately. And that, in turn, comes down to shifting market expectations about when the next Federal Reserve (Fed) rate cut will be.

Pablo Piovano, Senior Analyst at FXStreet, notes that the Canadian Dollar has managed to appreciate a tad since its lows earlier this month, prompting USD/CAD to slip back toward the sub-1.4100 region. Meanwhile, further gains appear likely above the key 200-day SMA near 1.3922.

Piovano notes that the resurgence of a bullish tone could encourage the pair to challenge the November ceiling at 1.4140 (November 5) before attempting a move to the April peak at 1.4414 (April 1).

Conversely, Piovano highlights that minor support comes at the November base of 1.3971 (November 18), prior to the always-relevant 200-day SMA at 1.3922. The loss of the latter could expose a deeper pullback to the October floor at 1.3887 (October 29) ahead of the September trough at 1.3726 (September 17) and the July valley at 1.3556 (July 3).

“In addition, momentum indicators remain constructive: the Relative Strength Index (RSI) hovers around the 53 level, while the Average Directional Index (ADX) near 20 suggests a still firm trend,” he says.

GDP FAQs

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.

Economic Indicator

Gross Domestic Product (QoQ)

The Gross Domestic Product (GDP), released by Statistics Canada on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in Canada during a given period. The GDP is considered as the main measure of Canada’s economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.