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Loonie rises after stronger Canada GDP data
Canada’s real GDP grew 0.3% month over month in May, and the report pointed to another 0.2% gain in June, supporting currency gains alongside firmer oil prices.
Markets tracked a boost to Canadian growth expectations after new GDP data reinforced the Bank of Canada’s more constructive tone. Real GDP rose 0.3% month over month in May, beating expectations, with the advance estimate pointing to another 0.2% month over month gain in June, according to Action Forex. The upside was supported by goods-producing industries, led by construction and natural resources, while services also grew for four straight months.
Action Forex also noted that trade-exposed sectors showed tentative signs of recovery after a difficult start to the year, leaving second-quarter growth tracking close to 3.5% annualized. Even so, the publication said first-half growth remains near a 1.5% annualized pace, roughly in line with trend, and that excess supply and labor market slack still weigh on the outlook.
Currency and rates reactions were described as relatively contained. Action Forex said Canadian two- and 10-year bond yields rose only a few basis points over the week, while the loonie gained about 0.5% on firmer oil prices and weakness in the broad U.S. dollar, suggesting stronger growth is supportive but not enough to materially change Bank of Canada rate expectations.
The report added that Survey of Employment, Payrolls and Hours data showed a second consecutive 0.2% month over month gain in May payroll employment, supporting signs that hiring may be turning a corner. However, inflation remained the main uncertainty for the Bank of Canada, and Action Forex said the latest Summary of Deliberations offered little indication that policymakers were becoming more concerned about underlying inflation pressures.