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Commerzbank’s Michael Pfister notes that Canada’s first-quarter real Gross Domestic Product (GDP) unexpectedly contracted and the previous quarter was revised lower, undermining hopes of a 2026 recovery. With the labour market already flashing warnings, he argues that Bank of Canada (BoC) rate hikes are highly questionable. He does not expect tightening before December and sees lower USD/CAD driven by a weaker US Dollar (USD), not a stronger Canadian Dollar (CAD).
Weak data challenge BoC tightening
“Some market participants had hoped that the Canadian economy was poised for recovery this year. However, the growth figures have now definitively called the recovery into question, despite the labour market having already sent many warning signals.”
“As we have argued on these pages on multiple occasions, the lack of a recovery makes potential interest rate hikes by the Bank of Canada highly questionable.”
“For stronger growth to return, the war in Iran must end soon and relations with the US must improve.”
“We strongly believe this will take several more months and therefore do not expect an interest rate hike until December at the earliest.”
“Those anticipating lower USD/CAD levels should therefore continue to focus on a weaker US dollar rather than a stronger Canadian dollar.”
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