TD Securities analysts report that Canada’s Q1 GDP and March output shocked sharply to the draw back, confirming a technical recession and dampening expectations for 2026 fee hikes. Regardless of softer information and modest curve steepening, they see Canadian front-end charges as pretty valued and continues to count on USD/CAD to commerce broadly sideways round present ranges by way of Q2.
Technical recession however FX seen steady
“Q1 Nationwide Accounts shocked sharply to the draw back with a 0.1% q/q contraction (TD/market: +1.5%) to depart Canada in its first technical recession for the reason that pandemic. Home demand contracted by 0.4% q/q, whereas downward revisions to This fall added to the dovish tone.”
“Business-level GDP for March was additionally softer than anticipated at -0.1% m/m (TD: +0.1%, market: 0.0%) on a big drag from pure sources that may unwind in April. The mix of softer GDP information for Q1 & March ought to assist to quell hypothesis round 2026 fee hikes, though we proceed to see a excessive bar for cuts.”
“All advised, the response in CAD mounted earnings was pretty measured, with Canada-US 2 and 5-year spreads settling ~4 bps tighter on the again of the info, and the curve modestly steepening. We see the front-end as near honest at these ranges, and suppose it is smart to fade steepening forward of subsequent week’s index extension.”
“We proceed to search for USD/CAD to stay range-bound round present ranges by way of Q2 as two opposing forces stay at work. On one hand, upside stress persists, pushed by relative information and fee divergence between the U.S. and Canada. Alternatively, draw back dangers stay, as any constructive geopolitical developments, would doubtless help broader danger sentiment and reinforce USD weak spot, permitting USD/CAD to float decrease.”
(This text was created with the assistance of an Synthetic Intelligence instrument and reviewed by an editor.)
