Canadian Dollar: GDP Rebound Supports CAD – TD Securities

TD Securities economists Robert Both and Emma Lawrence expect in their latest report that Canada's second-quarter national accounts will show a sharp rebound in GDP growth, driven mainly by stronger exports and solid services activity. They forecast expenditure-based GDP growth of 3.5% annualized and industry-level GDP growth of 0.3% month-over-month, while preliminary July data may keep third-quarter GDP above potential output.

**Growth Structure: Exports and Services as Dual Drivers**

The report notes that the second-quarter rebound was not driven by a single factor. Stronger export performance provided the main support, while services activity remained solid, together lifting overall growth noticeably from the first quarter. Earlier, Canada's first-quarter GDP and March output had come in well below expectations and confirmed a technical recession, making the second-quarter rebound clearly a recovery in nature.

**Implications for CAD: Constructive but Not Trend-Setting**

TD Securities believes the above growth backdrop provides a "constructive backdrop" for the Canadian dollar. However, from a policy perspective, the firm has not materially changed its view on the Bank of Canada due to the GDP rebound—still expecting the policy rate to remain unchanged until 2026, with gradual rate cuts beginning only in early 2027. This means the CAD is supported by fundamentals rather than by additional impetus from rate-differential expectations. USD/CAD was trading around 1.38452, remaining within a range-bound pattern.

**Risk Warning**

TD Securities also cautions that while the GDP rebound reduces the near-term risk of rate cuts, short-end rate valuations are already relatively reasonable, and further CAD strength will require more data confirmation, especially the final reading of July industry-level data.