Canada’s GDP contracted in the latest quarter but an economist argues the decline does not meet recession criteria, tempering expectations for Bank of Canada rate cuts and keeping the Canadian dollar firm against the greenback.
The article cites an economist downplaying recession risks despite a GDP contraction. A resilient labor market and consumer spending argue against a sustained downturn, which reduces the likelihood of aggressive Bank of Canada rate cuts. This keeps the yield advantage of the CAD intact, supporting the currency against USD.
The pair showed limited movement as the economist's comments tempered initial bearish sentiment on the loonie. The CAD held relatively steady, avoiding a sharp depreciation.
If further data supports the no-recession view, USD/CAD may test support near 1.35. A break below could target 1.33, while a reversal would face resistance at 1.38.
Oil is a major Canadian export; stable or rising oil prices provide a tailwind for CAD and could strengthen the bullish case against the dollar, especially if recession fears fade.
Canada’s latest GDP report posted a contraction, yet one economist contends the economy is not in recession territory. The decline was mild, and underpinned by steady consumer spending and a tight labor market, which argues against a prolonged downturn. The Bank of Canada is likely to hold rates steady while monitoring incoming data, and the Canadian dollar stabilized as immediate recession fears ebbed.
The latest GDP report showed a contraction, sparking concerns that the economy might be entering a recession.
The economist argues that a single quarter of GDP decline does not constitute a recession, especially when the labor market and consumer spending remain healthy.
If recession fears ease, the Bank of Canada is less likely to cut rates aggressively, but if data worsens, they could pivot quickly.