Canadian Dollar Strengthens on Expected GDP Rebound Highlighted by TD Securities

TD Securities economists project a sharp rebound in Canada's Q2 GDP driven by exports and services, supporting the Loonie.

Economists Robert Both and Emma Lawrence at TD Securities anticipate that Canada's Q2 National Accounts will reveal a sharp rebound in Gross Domestic Product growth. This upward momentum is expected to be propelled by stronger export performance and solid activity within the services sector. They project expenditure-based GDP to reach 3.5% annualized, alongside a 0.3% month-over-month increase in industry-level GDP.

Q3 Outlook and July Momentum
The analysts note that upcoming flash data for July will likely sustain this momentum, keeping Q3 GDP tracking above potential output. This trajectory reinforces a fundamentally constructive backdrop for the Canadian Dollar. Furthermore, Thursday's release of the payroll employment report and the Q2 current account balance will offer definitive insights into June economic conditions.

Broader Foreign Exchange Market Movements
Across the broader currency markets, GBP/USD remains in a consolidation phase above the 1.3600 threshold on Monday, following a robust rally the previous week. The US Dollar has managed to claw back some ground amid uncertainty surrounding potential US economic sanctions against Iran and their impact on energy prices, which keeps the risk-sensitive pair under pressure.

Meanwhile, EUR/USD trades below 1.1700 following strong gains last week. The currency pair faces headwinds as the US Dollar attempts a modest recovery from a sell-off that was sparked by modifications to the US Treasury bond buyback plan. Investors are maintaining a cautious stance while awaiting key events and further details regarding the upcoming US sanctions package targeting Iran.

Gold Rallies to Multi-Month Highs
Gold (XAU/USD) extended its upward trajectory on Monday, capitalizing on last week's strong rally triggered by the US Treasury buyback announcement. The precious metal traded near $4,650, marking its highest level since May.

US Treasury Expands Liquidity Support Operations
On Wednesday, the US Treasury deviated from its standard calendar by announcing significant adjustments to its operations. At 12:32 GMT, the department revealed plans to at least double the size of liquidity support buyback operations within the 10-year to 20-year and 20-year to 30-year sectors. The maximum limit per operation will increase from $2 billion to at least $4 billion, effective from September 9 through November 4.

What this means for you
In Canada: Stronger GDP projections and export growth support the Canadian Dollar, potentially bringing stability to local currency valuations.

Across Markets: US Treasury buybacks and geopolitical tensions surrounding Iran are driving volatility in global currencies and gold, impacting investor positioning.

Questions & Answers

1. What is the projection for Canada's Q2 GDP growth?
TD Securities forecasts expenditure-based GDP at 3.5% annualized.

2. What is the expected industry-level GDP increase for June?
Industry-level GDP is projected to increase by 0.3% m/m.

3. Where is Gold trading currently?
Gold is trading near $4,650, its highest level since May.

4. What changes did the US Treasury make to its buyback operations?
The Treasury increased the maximum liquidity support buyback size from $2 billion to at least $4 billion per operation for 10-year to 30-year sectors.

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