Stronger than expected growth in new Canadian GDP data sees the Canadian dollar keep a fundamental headwind behind its attractiveness to investors.
Canadian GDP Growth in November 2021
Yesterday saw the release of official Canadian GDP data. The data showed that Canadian GDP grew month on month by 0.6%, higher than the growth of 0.4% which had been widely expected. The performances attributes goods and services were almost equal, suggesting that growth is healthily broad-based. Additionally, the advance estimate for GDP growth for December 2021 was flat, which also is a little better than the consensus had been expecting.
The data show the Canadian economy was growing within the final quarter of 2021 at an annualized rate of 6.3%, surpassing the Bank of Canada‘s original forecast of 5.8%.
Markets are now seeing Canada’s economic performance for the final months of 2021 as very strong, justifying the Bank of Canada’s somewhat hawkish tone in its policy release earlier this week.
BoC Rate Hikes and Canadian Economic Growth
The Bank of Canada had already indicated it will hike rates next month, which is widely believed to be the first of six rate hikes due over the 2022 calendar year. The strong GDP data makes this anticipated March 2022 rate hike even more certain to happen.
While the path ahead looks clearly hawkish, a potential wild card might arise from the especially severe restrictions imposed by the Canadian government due to omicron coronavirus variant wave, which has hit Canada relatively hard. It is fairly certain that these restrictions will depress the forthcoming GDP data, and if their impact is harder than expected, it is just possible that the Bank of Canada will at least slightly slow the pace of rate hikes. However, it is impossible to imagine the Bank of Canada not hiking its interest rate in March 2022 regardless of any negative new information on growth.
What Does This Mean for Traders?
The Canadian dollar was quite unaffected by the new GDP data. The dominant price drivers in the Forex market right now, at least concerning major currencies such as the US and Canadian dollars, are the questions of risk and demand for US dollars.
The Canadian dollar has spent the last year chopping around the USD with swinging price action, not making any real trends except on shorter time frames. However, that does show that the Canadian dollar has been a relatively strong currency for some time, so longer-term diversified Forex traders may see rising Canadian GDP and a hawkish Bank of Canada as good reasons to keep that up, even if there is a short-term omicron blip.
Another factor helping the Canadian dollar stay quite strong has been the rising price of crude oil, which traded yesterday at another new 7-year high price. Loonie bulls should also find this encouraging.