USD/CAD: Trading the Canadian GDP Release

The Canadian dollar could face increase selling pressures over the next 24 hours of trading as market participants forecast GDP to contract 0.3% in October. Growth prospects for the world’s eighth largest economy have weakened considerably throughout the fourth quarter as firms cutback on employment and reduced spending.

Trading the News: Canadian Gross Domestic Product

What’s Expected

Time of release: 12/24/2008 13:30 GMT, 08:30 EST

Primary Pair Impact : USDCAD

Expected: -0.3%

Previous: 0.1%

Impact the Canadian GDP numbers had on USDCAD over the last 3 Quarters







September 2008 Canadian Gross Domestic Product

The Canadian economy grew 0.1% in September, while the annual rate of growth increased 1.3% amid expectations for a 1.1% rise. The breakdown of the monthly report showed that construction fell another 0.4% following a 0.2% decline in the previous month, while industrial production slipped 0.3% from August. Meanwhile, the Bank of Canada expects economic activity to grow at an annual pace of 0.6% in 2008 and 2009, which is the slowest pace for growth in over a decade, and conditions may only get worse as demands from the global economy falter. Mounting growth fears have already raised speculation that policymakers will continue to lower borrowing costs well into the next year as growth prospects weaken further, and may hold a dovish outlook throughout the coming months as price pressures alleviate.

August 2008 Canadian Gross Domestic Product

Economic activity in Canada contracted 0.3% in August, and conditions are likely to get worse as demands from home and abroad deteriorate. The breakdown of the report showed that wholesaling activity plunged 3.1% from the previous month, which was followed by a 1.1% decline in manufacturing. Weakening fundamentals paired with the spillover effects of the global credit crunch have stoked fears that the world’s eighth largest economy will face a recession as trade conditions deteriorate, which could lead the Bank of Canada to ease policy further over the coming months in order to stave off a severe downturn in the economy. The BoC stated that they expect economic activity to weaken further throughout the rest of the year as the major economies around the world head into a recession, which could stoke increased selling pressures for the loonie going forward.

July 2008 Canadian Gross Domestic Product

The Canadian economy expanded 0.7% in July, to reach its fastest pace of growth since March 2004. The breakdown of the report showed that manufacturing activity increased to 1.3% from the previous month, which was followed by a 3.1% gain in energy production. Despite the bigger than expected rise in GDP, the downturn in the U.S. paired with the spillover effects of the credit crunch has sparked fears of a global recession, which has raised speculation that the Bank of Canada will opt to lower the interest rate as demands from the global economy falter. Moreover, the recent pullback in oil prices has certainly helped to anchor inflation expectations, and only strengthens the argument for the BoC to lower borrowing costs as growth prospects for the major economies around the world deteriorate.

How To Trade This Event Risk

The Canadian dollar could face increase selling pressures over the next 24 hours of trading as market participants forecast GDP to contract 0.3% in October. Growth prospects for the world’s eighth largest economy have weakened considerably throughout the fourth quarter as firms cutback on employment and reduced spending.

The Canadian economy lost 70.6K jobs in November, which was the biggest decline since 1982, and raised the unemployment rate to a two-year high of 6.3% from 6.2% in the previous month. In addition, business spending fell to a record low during the same period as the Ivey PMI slipped to 40.2 from 52.2 in October. The downturn in the domestic economy has certainly dragged on growth as retail spending fell 0.9% in October, and the growth outlook for Canada may weaken further as demands from the global economy deteriorate. Trade conditions for the second consecutive month in October as the trade surplus narrowed to 3.8B from 4.3B, and conditions are likely to get worse over the coming months as the U.S., Canada’s biggest trading partner, heads into its longest recession in over a quarter century. Meanwhile, the Bank of Canada stated that the economy ‘is now entering a recession’ at the December 9th policy meeting, and as a result, policymakers lowered the benchmark interest rate by 75bp to 1.50% - the lowest level since 1958. In addition, the BoC forecasts inflation to fall to 1.6% during the second half of 2009, which could lead the central bank to lower borrowing costs even further as they carry out their dual mandate to ensure price stability while fostering economic growth.

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