Statistics Canada reported that real GDP in July remained at CAD 2.372 trillion, equivalent to zero percent month-on-month growth and below economists' consensus of +0.1%. June's growth was revised up to +0.4%, highlighting a contrast between a strong finish to Q2 and a sudden loss of momentum at the start of Q3. On a year-on-year basis, the economy expanded by 1.4%, well shy of the 3.3% recorded in Q2.

Retail sales released on September 24 confirmed weakening consumer demand: in July sales fell 0.7% to CAD 73.7 billion, the first decline since December last year. The drop was broad-based, with eight of nine sectors reporting losses.

Rate forecasts for the Bank of Canada have shifted noticeably. Scotiabank is calling for a hike at the October meeting, and the consensus expects the Bank of Canada to revise inflation forecasts higher in its October report whether or not it raises rates. Markets currently price roughly 100 basis points of tightening from the BoC by end-2027, implying a move toward the upper edge of the neutral range around 2.25–3.25%.

Oxford Economics expects elevated oil prices to persist over the next six months, sustaining inflationary pressure and potentially forcing the Bank of Canada to tighten earlier than previously assumed.

The trade conflict between the US and Canada has entered a tougher phase. US bans on imports of Canadian alcoholic beverages, motorcycles and dairy products took effect overnight on September 29. The move was a response to Canadian retaliatory tariffs introduced on September 8 on about $20 billion of US goods. Donald Trump said on Monday he still sees a trade deal with Canada as possible, saying "they will come to us and say: 'We want to remove all the tariffs.'" The US continues to apply pressure, and it remains unclear whether Canada can find countermeasures and hold its ground.

After six weeks of reduction, the net short position on CAD increased by $1.12 billion to -$3.82 billion, and the implied price has reversed upward.

A week ago we noted that USD/CAD's rise, while speculators trimmed CAD shorts, would lead either to a reversal down or to loonie selling in the futures market. The market followed the latter path, lowering the chance of a prompt southward reversal. The key level is the June peak at 1.4246: if it holds, the odds of a decline rise; if it doesn't, the bullish impulse could extend toward 1.4390–1.4410. Given the evolving fundamental picture, we believe the bullish impulse may lack sufficient strength to realize the higher targets and therefore expect signals for a downward move before a sustained advance.