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"Q2 GDP fell by 1.6% QoQ, confirming a significant slowdown in growth even after accounting for the impact of the Fort McMurray wildfire. Without the updated macroeconomic projections we believe the BoC will largely stay the course at the September meeting.
There should be some acknowledgement of an even Q2 GDP result than the central bank had been expecting but the BoC will wait until the October monetary policy report before considering any changes to the forward guidance or changing its assessment that the "overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate".
Going forward the BoC's margin for error is quite small in our view. With potential growth of about 1.5% it will take a GDP expansion of well above 3% during the second half of the year to make any meaningful impact on reducing the output gap. This means that BoC may need to change its message in October if incoming data disappoints.
Nearterm volatility in USD/CAD is still mainly driven by external factors and with crude likely to remain under USD50/bl we continue to see dips in USD/CAD below 1.30 as buying opportunities".
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