HomeCanadian GDP Shrinking Less Than Expected

Canadian GDP Shrinking Less Than Expected

1 July 2020 By Mircea Vasiu

On Canadian Day, the GDP release showed the economy contracted over 11% in April. Any other time, such news would have sent shivers on every investor’s spine, but this time is different. 

In fact, the -11.6% contraction was less than the expected -12.5%, and the Canadian Dollar (CAD), did rally on the news. We can say that the news came as a relief as the market expected worse numbers.

Details of the April Canadian GDP

To start with, the data refers to the month of April 2020, and each month it is released approximately sixty days after the month’s close. Therefore, the end of June reveals the GDP for April, the end of July for May, and so on.

If we dive into details, there is little to celebrate yesterday’s GDP data. Manufacturing continues to drop, and so does construction. Moreover, retail trade is down too, just like transportation and warehousing. Furthermore, wholesale trade declined, the public sector continues to contract, finance and insurance is down, and even mining, and oil and gas extraction declines.  All twenty industrial sectors in Canada were down.

One explanation is that the data was expected to be so due to the economic lockdown.

Where are the positives?

With large corporations and small businesses running at a low pace or not at all, the GDP decline is a given. The only question was to see the extent of it, so to assess how deep is the whole to dig out from. As it turned out, -11.6% is better than -12.5% with almost a full percentage point.

Another thing to consider is that the currency market is not about one currency only, but about currency pairs. In other words, exchange rates reveal the value of a currency in terms of another. If, for instance, the GDP shrank only in Canada, the CAD would have declined all over the board.

However for the month of April 2020, all major economies had the same faith. More or less, similar declines were seen in the developed and developing world, reflecting the global impact of the coronavirus crisis.

Due to today being Canada Day, there is a bank holiday in Canada, affecting CAD’s volatility. Moreover, the NFP data this week will not be accompanied by the Canadian jobs data, for the same reason – most market participants are on holiday.

Which makes positioning for the next trading week extremely important for those trading the Canadian pairs. If anything, investors will look at the US NFP data to have a clue about what the Canadian data might show next week.

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