Commerzbank’s Michael Pfister highlights that Canada’s real Gross Domestic Product (GDP) unexpectedly contracted in the first quarter, with the previous quarter’s figures also revised lower, undermining earlier hopes for a 2026 economic recovery [1]. The report notes that the Canadian labour market has already shown several warning signals, further challenging the outlook for economic growth [1].
Pfister argues that, given the weak economic data, the likelihood of the Bank of Canada (BoC) implementing interest rate hikes is highly questionable [1]. He states, 'the lack of a recovery makes potential interest rate hikes by the Bank of Canada highly questionable,' and does not expect any tightening before December at the earliest [1].
The analysis also points out that any anticipated decline in the USD/CAD exchange rate would be driven by a weaker US Dollar rather than a strengthening Canadian Dollar [1]. For a return to stronger growth, Pfister suggests that an end to the war in Iran and improved relations with the US are necessary, but he believes these conditions will take several more months to materialize [1].
CONCLUSION
Commerzbank’s analysis signals that weak Canadian economic data and labour market concerns are delaying expectations for Bank of Canada rate hikes until at least December. Market participants should focus on US Dollar movements rather than Canadian Dollar strength for USD/CAD direction.