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CAD is between a rock and a hard place - TD Securities

"We have revised our forecast for industry-level GDP and now look for a 0.2% increase in October following stronger-than-expected activity data and payrolls, with risks tilted towards a 0.3% print," TD Securities analysts said in a recently published report previewing tomorrow's data.

Key quotes

"A rebound in energy output will serve as the main driver for the goods sector - a sharp pullback in oil and gas production shaved 0.1pp from growth last month and we should get roughly half of that back before production cuts take effect throughout November. Manufacturing output should see a modest increase on the back of higher motor vehicle production and nondurables, offset by a sharp pullback in aerospace, while residential construction will benefit from the recovery in housing starts."

"On the services side, we expect a pickup from a muted 0.1% increase in September, with retail and wholesale trade activity providing a tailwind. However, continued weakness in existing home sales will weigh on real estate. A 0.2% print on headline GDP will leave Q4 growth tracking in the mid 1% range, well below the 2.3% estimate from the October MPR."

"The CAD is between a rock and a hard place. Though we see upside risk to GDP, we think the relief rally will be short-lived. With the backdrop for risk on shaky footing and limited scope for the BoC to further normalize rates anytime soon, the CAD is a sell-on-rallies. We think CAD pessimism is well entrenched in the USDCAD rate, with FV situated near 1.3525 at the moment. For this reason, we see scope for CAD downside to prevail in a more substantial fashion on the crosses. Here, our preference is CADJPY downside."

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