• Canada is expected to report an increase in monthly GDP in July after a weak outcome in June.
  • The impact of the US tariffs will be watched closely. 
  • With markets losing their obsession for NAFTA, GDP could have a significant impact.

Canada publishes its Gross Domestic Product estimate for July 2018 on Friday, September 28th, at 12:30 GMT. Canada was until recently one of the only countries to publish GDP numbers on a monthly basis. The UK joined it recently. The upcoming publication is for July, the first month of Q3. Other countries will release some Q3 GDP data only later on. 

The economy's output remained flat in June, a disappointing finish to the generally upbeat second quarter. Growth is projected to pick up in July: 0.2% MoM is on the cards. This is a relatively slow growth rate. If the outcome meets expectations, the Canadian Dollar will have a greater chance of falling than rising, as the number is not great.

A downside surprise will likely lead to a slide in CAD while a faster growth rate would be positive for the loonie. All in all, it's a mostly straightforward reaction.

Apart from the snapshot number, analysts will dig into the details in order to find any signs of the impact of the US tariffs on steel and aluminum and also Canada's counter-tariffs. If there are any such signals, it could weigh on the Canadian Dollar even if growth is OK. So far, the duties seem to have a negligible effect.

External factors: NAFTA and US data

During an extended period of time, the Canadian Dollar only cared about NAFTA negotiations. Every headline had an outsized impact and economic indicators were pushed aside. However, the talks are moving at a snail's pace and markets have lost interest. Threats by US officials to go it alone with Mexico have not had the same effect on the loonie as they had earlier.

Assuming no substantial NAFTA news such as a breakup of the talks or a deal, the GDP release should have a significant impact on the USD/CAD.

The US publishes the Fed's favorite inflation measure at the same time. The Core PCE Price Index is expected to slide in August from 2% recorded in July. However, as this is a lagging indicator, Canada's GDP data should dominate the movement in the USD/CAD. 

Nevertheless, it is important to note that Friday the 28th is the last day of the week, month, and the quarter. This implies erratic last-minute positioning by money managers that are adjusting their portfolios. The choppy moves usually come a bit later in the day. The initial reaction does not always have the final say of the day.

Conclusion

Canada's GDP is expected to rise at a relatively slow pace of 0.2%. If the data meets expectations, the loonie could suffer. The impact of tariffs could have its say. Otherwise, it is a straightforward reaction. It is important to take into account potential NAFTA headlines and US data, but the USD/CAD should mostly move on Canada's GDP.

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