CAD: Markets yet to factor in Trump risk premium amid OPEC noise
Today’s monthly GDP release for July will give us a clearer indication of how the economy has fared in 3Q16. With the BoC expecting a 3.5%QoQ rebound in the current quarter, a soft print today (sub 0.3% MoM) may cast serious doubts over the central bank’s projections. While a technical recession in Canada is unlikely, signs of weak growth will fuel speculation of another BoC rate cut – with markets only pricing around a 30% chance of this occurring by 1Q17, we still see scope for the domestic monetary channel to weigh on CAD. External factors look fairly ominous as well, with a tight US presidential election race (and rising chances of a Trump win) likely to keep CAD under pressure. Unlike MXN, we feel that CAD markets have yet to adequately factor in a Trump risk premium. USD/CAD could trade up to 1.35 ahead of the elections; a Trump win would see a breach of 1.40.