Week in FX Americas – BoC To Remain With Neutral Stance

  • Canadian growth quickens
  • BoC to be pleased, but not impressed
  • Poloz to remain with neutral stance next week

Friday’s data revealed that the Canadian economy accelerated at the fastest pace in nearly three-years in Q2. The usual culprits supported the annualized +3.1% gain between April and June: exports, consumer spending and business investments (an area that Canada is falling well behind in to its largest trading partner, the US). This was in stark contrast to the downwardly revised +0.9% advance print in Q1. Canada’s Q2 gain continues to lag that of the US’s where GDP rebounded aggressively, posting +4.2% annualized after contracting in Q1.

Will the BoC be happy?

The mix should please, but not necessarily, impress Governor Poloz at the BoC. The variation to an export and investment driven growth strategy is beginning to pay off. However, it’s worth noting that consumer spending continues to outpace disposable-income growth, and that Canadian saving’s ratio has dropped to +3.9% (a four-year low). This would suggest that the next obvious question would be about sustainability. Highlighting exports, it certainly has rebounded, but that came after weather related disruptions in Q1, a similar impeding factor for US growth.

The BoC meet next Wednesday and they are not expected to sway from their ‘neutral’ stance. In July, Governor Poloz said he expected the Canadian economy to reach full capacity about three-months later than originally thought, making that about mid-2016. The usual excuses were put forward; some softer US data and global growth would continue to weigh on Canadian exports and the domestic economy. They are plausible enough reasons for a BoC’s ‘neutral’ bias. On the plus side, Canadian Q2 growth did beat the BoC’s +2.5% forecast. Poloz is expected to hold steady the benchmark overnight rate at +1% next week.

The loonie is closing out the week on a softer note ($1.0865), and this after earlier printing a one-month low on the back of month-end demand and Q2 GDP report ($1.0823). Excluding any potential M&A activity or month-end balancing, there seems to be a healthy demand for USD/CAD on dips. Even geopolitical and event risk will favor the ‘mighty’ dollar.

What to expect next week

It’s a North American holiday on Monday. Despite the uptick in geopolitical tension – Russia vs. the rest of the world – CBanks monetary policy rate decisions and North American employment data will be taking center stage.

The RBA kicks the week off with its rate decision on Tuesday, followed by Aussie GDP and Retail Sales later in the week. The BoJ, the highly anticipated ECB (ABS details expected), and BoE will dominate Thursday’s action. The neutral BoC appears on Wednesday, while Friday’s Canadian jobs and NFP round off what should be an action packed week.


* GBP BOE Inflation Report
* AUD Reserve Bank of Australia Rate Decision
* USD ISM Manufacturing
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* CAD Bank of Canada Rate Decision
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Change in Non-farm Payrolls
* USD Unemployment Rate

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell