Macklem
The rates market is evenly divided on whether the Bank of Canada will cut by 50 or 25 basis points on October 23.
Today’s GDP report was slightly better than expected at +0.2% vs. +0.1% expected but the advance reading for August was flat. This has led to RBC estimating Q3 GDP at 1.0% annually, well below the Bank of Canada’s forecast of +2.8%.
Bank of Canada Governor Tiff Macklem has taken a more pessimistic stance recently, saying he wants to see growth show signs of picking up. The “positive” growth in Canada’s GDP comes as a massive population expansion and per capita GDP has declined for six straight quarters.
Furthermore, government spending and employment drive a large portion of the Canadian economy.
“The details behind July’s GDP increase were mixed – growth in direct government administration accounted for nearly a quarter of GDP growth over the past three months (by our count), with a third consecutive 0.4% increase in public administration in August to support services production growth,” reports RBC.
They expect the Bank of Canada to cut 25 basis points in October but this may change.
“We continue to expect further gradual rate cuts (at 25 basis points per meeting pace) down to the 3% overnight rate with risks leaning toward deeper/faster cuts if the economy deteriorates significantly,” they wrote.
USD/CAD is largely unchanged from before the GDP data, but the Canadian dollar got some help this week from Chinese stimulus.
USD/CAD daily