Despite continuing trade strain, economic data shows how Canada benefits from the exceptionally strong US economy.
Increasing retail sales will boost growth.
As far as Canadian economic performance is concerned, the trade-related damages are quite limited. This is the story that is expected to see tomorrow, GDP growth has increased by 0.4%. As in the first quarter, so far, production will be a major driver as it continues to benefit from strong global demand, especially in the US.
At the same time, in June, inflation recorded the largest increase for the year (+ 2.5%), coupled with strong growth. This may mean that the BoC will take action to raise the interest rate. The Bank continues to think that the investment and export contribution will be about 2 times more than 2017, as global growth has so far offset the “moderate” impact of tariffs.
NAFTA and trade pressure are not enough to defeat Canadian resistance … for now.
Expansion of tariffs has obviously increased tensions and this remains a major risk for Canada. Negotiations for NAFTA are currently stagnating and this will be the case until the end of the US elections in November.
On the bright side, economic data shows that Canada will continue to reap the rewards of the powerful US economy, stresses the US GDP report last week. Inertia in the US economy will continue for several quarters.
Given the good economic performance and the slight weakening in the dollar index, I expect USD / CAD to continue its adjustment to the Fibonacci level of 38.2%.