Canada’s Q3 GDP delivered a major upside surprise, lifting CAD and raising the bar for BoC easing. Markets now see USD/CAD capped near 1.41 with potential toward 1.38 by year-end, TDS' analysts note.

USD/CAD seen capped at 1.41, targeting 1.38

"Q3 GDP surprised sharply to the upside with a 2.6% q/q annualized gain, well above expectations for a muted rebound from Q2 (TD/market: +0.5%). Not all details were as upbeat with domestic demand down 0.1%, but historical revisions did also produce a positive level shock to 2024Q4."

"Industry-level GDP rose by 0.2% m/m in September to match expectations, as upward revisions translated to a positive surprise on a year-ago basis. September GDP growth was led by goods-producing industries, although new flash estimates for a 0.3% contraction in October took some shine off the report. With less excess capacity heading into 2026, today's report should reinforce a higher bar for the BoC to resume easing next year."

"A strong GDP report boosted CAD as markets pushed higher expectations of BoC terminal rate. As we have flagged, CAD looks structurally cheap above 1.40 but needs either quick stabilization of economic activity or USMCA extension/ trade deal to close its valuation gap. Further strength in economic activity can see continued gains in CAD with hopefully some help from broad USD weakness. We expect 1.41 to remain a comfortable ceiling for USD/CAD and see it heading towards 1.38 by the end of this year."