TD Securities expects Canada’s Q2 National Accounts to show a rebound from the Q4/Q1 slowdown, with stronger exports and resilient services activity lifting spending-side growth. The economists see expenditure-based GDP rising 3.5% annualised, versus a market expectation of 3.3%, while industry-level GDP is forecast to increase 0.3% m/m in June. That compares with a 0.2% flash estimate, pointing to firmer momentum through the end of the quarter.
They also expect July flash estimates to show continued expansion, leaving Q3 GDP tracking above potential output. Attention later in the week turns to Thursday’s payroll employment report for a final read on June conditions, released alongside the Q2 current account balance. The piece was produced with assistance from an AI tool and reviewed by an editor.
Outlook for Canadian GDP and Currency Implications
We expect Canada’s upcoming second-quarter GDP data to reveal a massive rebound to 3.5% annualized growth, largely driven by surging exports and strong services. This anticipated surge is significantly higher than the modest 1.7% growth recorded in the first quarter of the year, signaling a remarkably resilient economy. Consequently, we believe derivative traders should prepare for a stronger Canadian Dollar (CAD) in the coming weeks.
To capitalize on this momentum, we recommend buying CAD call options or taking short positions on the USD/CAD pair. Historically, when Canadian GDP outperforms consensus expectations, the CAD typically rallies by 0.5% to 1.2% against the US Dollar within forty-eight hours of the release. With June industry-level GDP expected to rise by 0.3% month-over-month, the bullish case for the currency is highly compelling.
Implications for Interest Rates and Trading Strategies
We also advise traders to adjust their positions in Canadian short-term interest rate futures, as this economic strength will likely force the Bank of Canada to keep rates higher for longer. Yields on Canadian 2-year government bonds historically spike by 10 to 15 basis points following similar high-growth GDP releases that outpace potential output. Selling CAD interest rate futures now allows traders to profit from this impending rise in yields as market rate-cut expectations dry up.
