Canada: GDP growth should maintain 0.1% pace in January - TDS

According to analysts at TDS, Canada’s GDP growth should maintain a muted 0.1% m/m pace in January as transitory headwinds weigh on both the goods and services sector.

Key Quotes

“Disruptions to auto production will once again constrain goods sector output while new mortgage rules and the resulting slowdown in home sales will weigh on services. Food services could be another source of weakness due to the Ontario minimum wage hike, but any impact on GDP should be more modest. A 0.1% print would leave Q1 GDP tracking in the mid-1% range, well below the Bank of Canada's projected 2.5%. This would extend a period of near-trend growth to three quarters after a robust 17H1 and strengthen the case for the Bank of Canada to hold rate unchanged in April. After all, a 0.1% print on GDP is unlikely to push the Canadian economy from Poloz's "sweet spot."

“FX: The loonie comes into the monthly GDP print with little directional bias. It failed to hold the inflation-inspired rally but a mix of lopsided positioning and wobbly equity markets have offered conflicting signals. In turn, we are mostly neutral on the week. Market expectations sit at 2.9% on the annual print, though we would point out that the distribution of forecasters leans a bit to the right.

Perhaps that is a sign that the forecasting community has a bias towards a stronger print, which we think leaves CAD vulnerable to headline disappointment risk. Indeed, our baseline shows some softening in GDP against the BoC's forecasts. That dovetails with the recent softening of Canadian data momentum, alongside some downward revisions in the markets view on growth. A mix of monthend flows and firmer USD are also working against CAD. The key level to watch is the fib level from the January lows around 1.2920. A break there fuels a move towards 1.30 and a re-test of the highs near 1.3132.”