Canada's economy rebounded sharply in the second quarter, growing at an annualized rate of 3.3%, the fastest since 2023, after a revised 0.3% increase in the first quarter, according to Statistics Canada. The upward revision means Canada avoided a technical recession. The growth was driven by strong exports, which rose 3.6%, the biggest increase in over three years, and solid domestic demand, with household spending up 0.8% and business investment expanding 2.3%. However, a new 50% U.S. import tariff on $20 billion of Canadian exports, imposed by President Donald Trump, injects uncertainty into the outlook, though Canada has retaliated with counter-measures. The Canadian dollar weakened slightly to C$1.3856 against the U.S. dollar, and money markets expect no change in interest rates next week.
Canada's strong GDP growth and domestic demand may reduce need for rate cuts, but new US tariffs and retaliatory measures create uncertainty; CAD weakened slightly, making USD stronger relative to CAD.
