Robust GDP figure could boost lagging loonie

Statistics Canada will reveal Wednesday just how fast the country’s economy is growing right now, but even a barnburner of a number is unlikely to get the Bank of Canada to nudge up interest rates before next year.

An interesting gap is emerging between private sector economists, who are staking out bullish positions on Canada’s economy, and the Bank of Canada, which has yet to show any sign that it will hike its benchmark interest rate before 2018.

If there’s an immediate winner from this outlook gap, it may be the beleaguered loonie. Speculators have been roughing up the Canadian dollar due to doubts about U.S. crude oil prices, to concerns over the housing markets in Vancouver and Toronto, and to uncertainty over the U.S. administration’s protectionist trade policies. The loonie was the worst performing of the G10 currencies last year, and earlier this month it dipped to US72.50 cents, its weakest price in more than a year.

A robust first quarter GDP number might help turn the tide. The data is telling the story of a rapidly growing Canadian economy. The average forecast of 21 private sector economists and analysts surveyed by Bloomberg has Canadian Q1 GDP at an annualized rate of 4.08 per cent.

This could inspire currency traders to be ahead of the curve and learn to love the loonie long before the Bank of Canada takes any action. Interest rate hikes tend to bolster the dollar as the higher yield brings in investment.

Beata Caranci and James Orlando of TD Economics say Canada’s economy is absorbing slack faster than expected. This should force the Bank of Canada to raise its policy rate by the second quarter of next year. “Canada’s strong economic performance thus far has been seemingly ignored by financial markets, as concerns about Canada’s housing market and trade clouded the outlook,” they write. “Maybe the time has come to buy Canada.”