Canadian Dollar Faces Growth and Policy Crosswinds from Trade War

The Canadian dollar is trading near its 200-day moving average at around $1.3840 as Canada's Q2 GDP is expected to rebound strongly.

Elias Haddad from Brown Brothers Harriman notes that real GDP is seen rising 3.4% SAAR, exceeding the Bank of Canada's projection of 2.5%, and Statistics Canada's advanced July GDP estimate will offer an early read on Q3 growth.

However, a worsening US-Canada trade war poses a significant threat to this rebound.

Haddad believes that current market pricing for Bank of Canada hikes is too aggressive, with 75bps of hikes expected in the next twelve months, leaving room for a dovish repricing and USD/CAD firming near $1.4000.