Canada’s real GDP grew at a 2.9% pace in Q2 after a revised 1.4% gain in Q1 (was +1.3%). Consumption, net exports and M&E investment led the acceleration in Q2 GDP growth, as expected. The 2.9% growth rate is nearly identical to the 2.8% pace projected by the Bank of Canada, and hence adds to the already strong case for no change in rates at next week’s policy announcement. The separate June GDP report showed no change (0.0%) after an unrevised 0.5% gain in May, also close to expectations. Reuters reported that the probability of BOC raising rates next week slipped from 22% to 18% following the GDP miss. It had been as high as 50-50 before Governor Poloz’s speech at Jackson Hole, just last week.
Conversely, the US jobless data showed a 3k initial claims bounce to 213k in the fourth week of August reversed the three-week downtrend to a lean 210k in the BLS survey week, from 219k in late July. Claims are still just 5k above the 48-year low of 208k in the July BLS survey week. The claims downtrend leaves new multi-decade lows within reach each week. Claims are averaging 212k in August, which lies below the super-lean 215k July average, and well below prior averages of 225k in June, 223k in May, and 221k in April.
The 210k August BLS survey week reading exceeded the 208k July BLS survey week figure, but undershot prior readings of 218k in June, 223k in May, and 233k in April. The last five weekly NSA claims readings, within the 173k-185k range, are the lowest since 1973, with last week’s 173k NSA figure marking a new low that extends back to October of 1969. Expectations of a 210k August non-farm payroll estimate exceeds the 157k July rise, but is in line with the 215k average since January and 200k average for the last 12 months. Payrolls face ongoing upside risk from a tight path for claims and robust consumer, producer, and small business confidence.
USDCAD popped to 1.2980 highs from 1.2930 following the softer Canada GDP outcome. Prior to the data, the pairing had been hanging around in the low 1.29s, with focus remaining on US/Canada trade talks being held in Washington. Canadian foreign minister Freeland was optimistic for am agreement when speaking to the press on Wednesday. USOil prices have been supportive of the CAD as well, topping the $70.00 mark for the first time this month.