The Canadian GDP report is due out Friday which will provide measurements of growth for the month of March and the first quarter of 2008. Expectations are that the economy was flat for March and slowed in the first quarter to 0.4% from 0.8% the quarter prior. The demise of the Canadian economy has yet to come as expected because of the U.S. downturn, which is the country’s main trading partner. Strong domestic growth on the back of a robust labor market and emerging market demand for Canadian natural resources, have offset the U.S. headwinds. Companies added another 19,200 jobs April, which has led to retail sales increasing in five of the last six months. Meanwhile, exports have held strong as demand has increased from the U.S. over the last three month resulting in the int’l merchandise trade balance surplus widening to C$5.5 billion from C$4.5 billion in February. The economy has also benefited from record commodity prices which has seen the value of its exports increase and spurred growth in those industries. Yet, Canadians are contending with the residual effects of rising fuel prices, as inflation accelerated for the first time in five months to 1.7% from 1.4%. The resilient economy will allow the BoC to pause their current easing policy as they take measure of past efforts and inflationary pressures.

Bonds – 10-Year Canadian Government Bond Futures

Canadian government bonds have broken below support of the 50.0% Fibo of 113.90 – 120.75. Momentum is looking like it will turn neutral or bearish at these levels as it may try and retest the 4/28 low of 116.89. A rebound in growth will generate risk appetite and push the BoC further away from future rate cuts which would weigh the contract further. Conversely a consecutive negative month of growth will provide support and reestablish the 117.325 Fibo level as support.

FX – USD/CAD

As the Canadian economy has continues to show evidence of being able to withstand the headwinds from the U.S. loonie bulls have continued to sell the pair. A better than expected GDP reading will significantly increase the chances that the BoC will pause their current easing policy, and may send the pair below support. Especially if manufacturing growth continues, as that was Governor Carney’s concern after the last release. Although an inline print or a consecutive decline may see the pair bounce off of support. The USDCAD has failed to break below support at 0.9810 after rallying on the back of record oil prices. Indeed, according to Technical Strategist Jamie Saettele’s Daily Technical Report on Thursday, If the pair remains above 0.9710, we may see a USDCAD bullish push up to 1.0324.

Equities – S&P/TSX Composite Index

The S&P/TSX Composite Index has been in a steady decline since running into the psychological resistance level of 15,000. The recent downturn ended a 2,500 point rally on the back of rising oil prices. Trendline support is looking to slow reverse the current sell off which was led by the concerns that rising inflation will start to curb consumer spending. A rebound in the upcoming GDP report especially in the retail and wholesale trade components will go a long to easing those fears and could bolster investors putting equities back on trend. However, a consecutive month of declining growth will only stoke those fears and may send stocks tumbling below support.

Terri Belkas is a Currency Strategist at FXCM.