Canadian GDP brought forth few surprises on Friday, with the Canadian economy growing in the second quarter very much in line with market expectations (+1.7% annualized vs. +1.6%). The best consumer spending performance in over two years mostly backed the strength. However, June's month-over-month print (-0.5%) was the biggest loss since the beginning of the global recession. The steep monthly decline was driven lower by construction, mostly due to the labor disputes in Quebec.
The recent soft tone of weak employment data and still-elevated housing activity levels suggest little scope for change in policy from the Bank of Canada in the near term. What of the Canadian dollar? There seems to be some good demand for the loonie at certain levels. With expectations set for the Fed to start tapering next month, the CAD is likely to remain under pressure "outright." However, if the market buys into the U.S. growth theory, the USD/CAD range should be somewhat contained.
Overall, the market seems to prefer to own USD, and with potential rate differentials and geopolitical and EM concerns, the loonie is best to be owned on the crosses rather than "outright." Week- and month-end repositioning ahead of the long Labor Day weekend could end up providing an "outlier" trading day for CAD.