Canada Q2 GDP grew 3.3% annualized, far above forecasts. Business investment jumped 12.7%. The Bank of Canada will likely hold rates in September, keeping the loonie supported against a firm dollar.
The Canadian dollar hugged the 1.3440 mark this week, failing to break out of the 1.34-1.35 range despite a much stronger-than-expected GDP print.
Canada's economy grew at a 3.3% annualized pace in the second quarter, the fastest since late 2023. The gain was broad-based. Exports and business investment led the upside. Business investment surged 12.7% annualized, with machinery and equipment spending rebounding. Non-residential structures investment also rose. Consumer spending climbed 4.6% annualized, the fastest since late 2023. Durable goods purchases, led by vehicles, jumped 10.8% annualized. Services spending also grew solidly.
The data suggests the economy absorbed the trade shock better than feared, the weekly review said. The Bank of Canada is now seen holding its policy rate at the September meeting, economists said. That supports the loonie.
The US dollar is also firming, supported by the soft landing narrative.
In the United States, the S&P 500 and Nasdaq hit fresh record highs this week. The small-cap Russell 2000 gained 2.1%. The Conference Board's Leading Economic Index fell 0.1% in July, its fifth consecutive decline. The pace of contraction has slowed. The share of LEI components in expansion rose to 50%, the highest in nearly a year.
Housing data showed cautious stabilization. New home sales rose 4.2% in July. Existing home sales edged up 1.5%. Mortgage rates pulled back slightly, and builder incentives helped offset high borrowing costs. Affordability remains a key hurdle.
Corporate earnings continue to support the growth narrative. With 90% of S&P 500 companies reporting, blended earnings growth reached 12% year-over-year. That marks the fourth consecutive quarter of double-digit profit growth. The data reinforces the soft landing view, analysts said.
The next catalyst for the dollar and loonie is the Jackson Hole Symposium, where Fed Chair Warsh will speak. Markets will look for clues on the rate path. The dollar is expected to stay bid unless the Chair signals a dovish tilt, traders said. USD/CAD remains range-bound, with support near 1.34 and resistance near 1.35. The next move may depend on the trade talks deadline in early September, traders said.
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