Canadian GDP Preview: Rebound growth numbers eyed by the BOC, NAFTA fate feared

• Canada's Q2 GDP was likely much better than Q1.
• A high growth rate will drive interest rates higher.
• Any NAFTA headlines impacting future growth can overshadow past growth figures

Canada releases Gross Domestic Product data on Thursday, August 30th, at 12:30 GMT. Canada is unique in publishing GDP on a monthly basis contrary to other countries that do so only a quarterly basis. The upcoming event is for June, concluding the second quarter. So, Canada also makes public the annualized quarterly growth rate, making this event more significant than the ones including only monthly data.

Expectations and potential reactions

The Canadian economy grew by a meager annualized growth rate of 1.3% in Q1 2018. A slow advance was also seen in Canada's neighbor, the US, and even in Europe, among other places. A relatively harsh winter was one of the reasons for the moderation. 

The second quarter has seen a pickup in growth. The US has seen a 4.1% annualized according to the first release, the highest pace in four years and Canada is expected to enjoy a leap as well.

A quarterly growth rate of 3% is on the cards for Q2. Any dip below the round number may weigh on the loonie, and a beat will push it higher. If quarterly growth meets expectations, the focus will likely shift to the monthly report for June. Here, a modest increase of 0.2% is forecast after 0.5% beforehand. Any surprise in the monthly figure may indicate a new trend. 

BOC watching

The Bank of Canada raised rates recently and maintained its hawkish bias. Governor Stephen Poloz and his colleagues indicate further rate hikes. The publication comes less than a week before the next rate decision by the BOC on September 6th. The September meeting does not include a press conference, and the likelihood of a hike is low.

However, the Ottawa-based institution may opt for another increase in the Overnight Rate in October. Growth figures may impact the odds of such a move and consequently, the Canadian Dollar.

New NAFTA looms

NAFTA negotiations have been behind many significant moves in the loonie in recent months. The GDP data report comes just days after the US and Mexico announced an agreement. The deal between Canada's North American neighbors is expected to include Canada after the US and Mexico have resolved their issues. The optimism pushed the C$ higher.

However, President Trump toughened his stance against Canada and seems to have adopted a "take it or leave it" approach. Mexico, always calling for a trilateral deal, has also opened the door to excluding Canada.

Frantic negotiations are going on Washington. The Canadian economy heavily depends on demand from the US. A successful conclusion of the talks will boost the Canadian Dollar on hopes for upbeat growth in the future while ignoring Q2 data. A breakdown will send the loonie plunging, as a future recession makes Q2 figures irrelevant as well.

The situation is evolving.

More: New NAFTA: Trump wants to corner Canada, but will Congress let him?