Canada: Downside growth surprise - TDS

Canadian growth surprised to the downside in August, contracting 0.1% m/m and missing TD/market expectations of 0.1%, notes the analysis team at TDS.

Key Quotes

“This miss should take our Q3 tracking near 2.0% from about 2.5%, close to the Bank's 1.8% forecast, supporting its near-term cautious tone.”

“Some of the weakness can be faded, but the cooling in the goods sector is taking a toll on growth. With growth just a notch above trend, the urgency to hike is obviously less convincing and the window to hike will likely tighten by next spring although macro imbalances are still a valid concern.”

“Rates: The disappointing GDP figures will keep the dovish Canadian narrative alive. There is just a 50% chance of a hike priced into the January FAD, but the path of least resistance over the next week or two is going to be a slow grind lower in 2 and 5-year rates.”

“FX: The negative surprise in GDP reinforces our bias that the USDCAD remains asymmetrically tilted to the upside in the coming weeks.”