RBC bumps up Canadian and US growth forecasts, sees Fed and BoC frozen through 2026
At a Glance
Lead — RBC's revised growth projections for Canada and the U.S. signal a notable shift. The Canadian economy's annualized GDP estimate for Q2 has been increased to 2.2%, driven by robust household spending and a recovering business investment landscape. Meanwhile, productivity gains are set to sustain U.S. growth at 2.2% in 2026 and 2027. As outlined in the full note source, the Bank of Canada is expected to maintain its rate at 2.25% until 2026, while the Fed's stance might need reassessment if inflation persists.
Key Takeaways
- 01RBC raised Canadian GDP forecast for Q2 to 2.2% from 1.7%, citing strong household spending and investment.
- 02U.S. growth is projected at 2.2% for 2026 and 2027, bolstered by structural productivity gains.
- 03The Bank of Canada is expected to remain on hold at 2.25% through 2026, while the Fed's medium-term outlook faces inflation-related pressures.
- 04The forecast adjustments imply a potential divergence in monetary policy responses between Canada and the U.S.
Full Analysis
What the desk is arguing
The desk argues that the positive GDP revisions from RBC present a more optimistic view for both Canada and the United States. Per the full note, RBC attributes the Canadian growth forecast upgrade to resilient household spending amid rising gasoline prices, alongside recovering business investment and a positive net trade contribution.
In contrast to Canada's modest growth adjustments, the U.S. growth outlook reflects more structural changes, with RBC highlighting that U.S. productivity has consistently outpaced 2.5% annualized growth since early 2024. This situation suggests that both economies, particularly the U.S., may witness a more assertive trajectory in GDP growth through 2027.
Where it sits in our coverage
At the moment, we are targeting a USD/CAD range of 1.04 to 1.12, with a consensus at 1.075. The projections from firms such as jpmorgan at 1.10 and bofa at 1.04 for March 2026 illustrate a divergence in outlook.
The RBC forecast suggests a stronger growth narrative, placing it at the upper end of the spectrum in light of more rigorous economic signals from the U.S., while the Canadian outlook remains more tempered and stable.
How other firms see it
Firms such as jpmorgan and citi are aligned with RBC's optimistic takes on U.S. GDP growth, particularly emphasizing productivity advancements. In contrast, bofa presents a more cautious stance concerning Canadian economic performance and inflation risks.
Given the current dynamics, traders should monitor shifts in the USD/CAD pair, especially considering how both central banks may respond to evolving economic conditions and inflationary pressures.
Market Implications
Watch for how the USD/CAD reacts to inflation data and central bank signals, particularly given RBC's stance that any persistent inflation in the U.S. could prompt a reassessment of Fed rates. Traders should keep an eye on cross-asset implications arising from increased U.S. productivity.
From the original
RBC raised its Q2 Canadian GDP tracking estimate to 2.2% annualized from 1.7% previously. After two quarters of stagnation, the drivers are the usual suspects: resilient household spending (impressive given what gasoline prices did to buying power this spring), recovering busines
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