On Friday afternoon, attention will focus on two GDP figures from North America; both Canada’s and the USA’s latest GDP growth figures are published at GMT 12:30pm. The forecasts, from the various economists polled by Reuters and Bloomberg, predicts GDP growth in both countries.
Canada’s growth is predicted to come in 0.2% for May, maintaining the performance recorded in April, which would keep the country on target for year on year growth of 4.2%. With interest rates recently raised: analysts, investors and indeed Canada’s central bank, who recently raised the rate to 0.75% on July 12th (for the first time in seven years), will be monitoring the release carefully. To ascertain if they were correct with their bold move, or if the rise was premature. Will the growth figure underpin the confidence the Royal bank of Canada confidence has in the economy, convinced the country will maintain its current growth trajectory?
The Loonie (the Canadian dollar) has experienced significant gains versus its main peers and specifically versus the U.S. dollar since the key interest rate rise, maintaining gains which began to gather momentum from early June. Naturally any shock to this GDP figure; should the forecast miss the actual reading, could affect USD/CAD, if analysts and investors begin to believe the currency is overbought.
The annualized, second quarter GDP figure for the USA, is forecast to rise to 2.5%, from the 1.4% figure recorded for Q1. Coming so close to the interest rate decision, at which the FOMC decided to keep the main interest rate at 1.25%, investors will be looking for evidence from the GDP figure that supports the opinion from: the FOMC, The Fed and many analysts, that the USA economy is robust enough to absorb the third interest rate rise, which has been penciled in for the last quarter of 2017. With the FOMC/Fed also signaling that they want to begin unwinding the circa $4.5 trillion balance sheet in September, this latest GDP figure is taking on even more significance as a high impact release. If the figure misses, or beats the forecast, then the U.S. dollar could react quickly and violently, versus its main peers.