Brown Brothers Harriman’s (BBH) Elias Haddad notes USD/CAD is trading just above its 200‑day moving average near 1.3840 as Canada’s Q2 GDP is expected to rebound strongly, with real GDP seen rising 3.4% SAAR versus a slight Q1 contraction. However, Haddad warns a worsening US–Canada trade war could cut the rebound short and sees current Bank of Canada hike pricing as too aggressive.

Loonie faces growth and policy crosswinds

“USD/CAD is trading just above support at its 200-day moving average (1.3840). Canada’s economy is expected to recover in Q2 boosted by domestic demand and exports (1:30pm London, 8:30am New York).”

“Real GDP is seen rising 3.4% SAAR vs. -0.1% in Q1, which would be stronger than the Bank of Canada’s (BoC) 2.5% projection. Statistics Canada’s advanced July GDP estimate will also offer an early read on Q3.”

“However, the worsening US-Canada trade war threatens to cut the rebound short.”

“Encouragingly, core inflation near 2% gives the BOC room to stay on hold and cushion the economy.”

“As such, market pricing 75bps of BOC hikes in the next twelve months look too aggressive, leaving scope for a dovish repricing and USD/CAD firmer near 1.4000.”