Oil Slide Eases Fed Pressure, Dollar Holds Against Loonie

Canadian GDP shook off the winter blues in April, posting a 0.5% month-on-month gain, the largest since July 2025. Incorporating StatCan's guidance for May, the economy is on track to grow above 2% annualized in the second quarter. That is stronger than the Bank of Canada projected in April. The bounce comes after several quarters of soft activity. The economy is still likely in excess supply, the report noted. Core inflation remains well behaved, and slack should apply downward pressure.

The July 1 deadline to extend the CUSMA agreement for 16 years passed without a deal, as expected. The process now moves to annual reviews, keeping a cloud of uncertainty over trade. Manufacturing GDP has risen in two of the last three months through April, and hiring picked up in May. That is tentative evidence that the worst of the trade conflict may be in the rearview.

None of this shifts the rate view. The Bank of Canada is expected to stay on hold for the rest of 2026, the report said. Next week brings the Business Outlook Survey and the June jobs report. The prior BOS showed businesses adjusting to the trade war, while May hiring surged, raising the risk of a giveback in next week's data.

For the Canadian dollar, the story remains the gap in growth and rates. The dollar has been tumbling since early May, pressured by hawkish Fed messaging. The forex market analysis shows a persistent dollar bid against the loonie, with the pair trading near 70 US cents. The report said a break below that level would require either a dovish pivot from the Fed or a sustained improvement in Canada's trade outlook. Neither looks imminent based on current data.