The focus in Canada this week will be on today’s release of GDP and April industrial production.
The market consensus for the March release is 2.3% YoY down from 2.5% YoY prior. The annualized figure for Q1 is expected to rise 1.8% QoQ from 2.9% QoQ prior. What’s more, the market expects that industrial production remain unchanged at 0.4% MoM in April.
What is at stake is whether the BoC’s recent forecast downgrade was warranted. Indeed, despite the recent growth downgrade CAD has been one of the best performing currencies in the G10 over past week and past month, owing to a positioning adjustment and better risk backdrop. Better inflation prints have also helped but we think the BoC will continue to look past the recent bumps in inflation.
Overall, we suspect the economic data releases will shift the focus back to Canada’s fragile growth outlook and in turn they could be potential catalysts for renewed spike in CAD’s price action.
We estimate fair value near 1.095 and would look to buy USD/CAD ahead of the 200dma near 1.075.