Maxco Futures – Canada enters a decisive week as investors, policymakers, and market participants prepare for Friday’s GDP release — a key report that may answer the big question: has the Canadian economy slipped into a recession, or is it merely experiencing a temporary slowdown?
Statistics Canada is set to publish economic growth data for September and the third quarter of 2025. Market consensus points to moderate growth of around 0.4%–0.5%, although several economists warn that the figure could come in weaker, given the declining export trend and rising domestic pressures.
Signs of economic weakness have already emerged. In the second quarter, Canada recorded a 1.6% contraction, reversing the +2% momentum from the first quarter. The main driver was global trade disruptions that weighed on Canadian exports, while domestically, slowing consumption and high mortgage burdens continue to erode household purchasing power.
The debate over whether Canada has entered a recession remains ongoing. Technically, a recession is defined as two consecutive quarters of negative growth. Since the first quarter still showed expansion, some analysts argue that the current economic status remains in a grey zone.
“The calculation still leaves room for interpretation,” said Angelo Melino of the C.D. Howe Institute, emphasizing that this year’s average growth trend has not yet turned fully negative.
A more cautious view comes from former federal economist Don Drummond, who described Canada’s economy as “standing still.” According to him, stagnation has begun to surface in consumption, investment, and trade indicators.
Market Impact and Policy Outlook
Market participants are now eager to see how the Bank of Canada will respond. Should GDP data show another contraction or near-zero growth, expectations for rate cuts may rise — opening the door for a potential policy shift after a period of elevated interest rates.
Canada’s bond market has already begun pricing in this scenario, with medium- and long-term yields moving lower in recent weeks.
Implications for USD/CAD
Economic uncertainty places the CAD in a defensive position.
- If GDP comes in weaker than expected, increasing the likelihood of earlier rate cuts, the CAD may weaken further against the USD.
- Conversely, if the data shows stronger-than-expected resilience, the CAD may see a technical rebound, although gains are likely limited as the central bank maintains a cautious stance.
Currency analysts note that the CAD remains sensitive to two key factors:
- Canada–US interest rate spreads, especially if the Federal Reserve delays cutting rates.
- Commodity prices, particularly oil, which plays a major role in shaping sentiment toward the Canadian dollar.
For now, the USD/CAD pair is expected to trade in a wait-and-see range, with volatility likely to pick up ahead of Friday’s GDP release.
Ade Yunus, ST WPA
Global Market Strategies