TORONTO – Economists at TD Securities are forecasting a sharp rebound in Canada’s second-quarter gross domestic product, a development they say should lend support to the Canadian dollar in the near term. In a note released Friday, TD Securities economists Robert Both and Emma Lawrence projected that the upcoming Q2 National Accounts will show a marked acceleration in growth, driven primarily by stronger export volumes and resilient services sector activity.
The forecast arrives ahead of the official data release from Statistics Canada, scheduled for later this month. The bank’s economists did not specify an exact quarter-over-quarter annualized figure in the note, but they framed the expected rebound as a clear departure from the subdued growth recorded in the first quarter of 2026.
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What’s driving the projected rebound
According to the TD Securities note, the main engine of the Q2 recovery is trade. Export volumes are expected to have picked up meaningfully during the quarter, helped by firmer external demand and the resolution of some supply-side constraints that weighed on shipments earlier in the year. The economists also pointed to solid services activity, particularly in consumer-facing sectors such as hospitality and transportation, as a secondary but important contributor.
The combination of those factors, they argue, should be enough to offset ongoing weakness in interest-rate-sensitive areas of the economy, including housing and business investment, which have continued to feel the effects of elevated borrowing costs.
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The TD forecast aligns with the broader consensus among Canadian economists, many of whom have penciled in a rebound for the spring quarter after a soft start to the year. However, the range of estimates remains wide, with some forecasters expecting only a modest recovery and others projecting a more vigorous bounce-back.
What it means for the Loonie
For the Canadian dollar, the GDP outlook matters because of its implications for the Bank of Canada’s policy path. A stronger growth print would reduce the pressure on the central bank to continue cutting interest rates, which in turn would narrow the yield differential between Canadian and U.S. government bonds – a key driver of currency movements.
“A solid GDP number gives the Bank of Canada more room to hold rates steady, and that’s supportive for the currency,” said a senior currency strategist at a Toronto-based asset manager, who was not authorized to speak publicly.
The Loonie has traded in a relatively tight range against the U.S. dollar over the past several weeks, as markets have priced in a roughly even chance of another rate cut by the Bank of Canada before year-end. A stronger-than-expected GDP report could shift those odds and provide a short-term boost to the currency.
Risks and what to watch
TD Securities cautioned that the rebound, while welcome, may not mark the start of a sustained acceleration. The economists noted that the strength in exports could prove temporary if global demand softens, and that the services sector’s resilience may fade as households continue to grapple with high debt-servicing costs.
Market participants will be watching the National Accounts release for details on the composition of growth, particularly whether the rebound is broad-based or concentrated in a few sectors. Also on the radar is the Bank of Canada’s next policy announcement in September, where updated economic projections will provide further clarity on the central bank’s thinking.
For now, the TD Securities forecast adds to a growing sense that the Canadian economy is stabilizing after a sluggish start to 2026, even as risks to the outlook remain tilted to the downside.
This article is for informational purposes only and does not constitute financial advice. Currency markets are volatile and forecasts can be wrong. Readers should conduct their own research or consult a financial advisor before making investment decisions.
