06:48 AM EDT, 06/04/2025 (MT Newswires) -- Canada Q1 gross domestic product growth surpassed the Bank of Canada forecast last week at 2.2% versus a 1.8% seasonally adjusted annual rate, but growth was admittedly distorted by frontloading net exports with autos up 16.7% to beat the United States tariff deadline, said Societe Generale.

This may tip the scales towards no change on Wednesday at the BoC policy meeting, but the marked slowing in personal consumption growth to just 1.2% could still result in further easing in policy down the line from the current 2.75% towards the lower end of the neutral range (2.25%-3.25%), wrote the bank in a note to clients.

In its Financial Stability Report, the BoC noted that 60% of mortgage holders are facing renewal this year or in 2026 at levels well above previous rates. A prolonged trade war with the U.S. may exacerbate the slowdown, stated SocGen.

Governor Tiff Macklem believes that the Canadian economy will be "quite a bit weaker." Further widening of the rate differential with the U.S. would have been counterproductive to the valuation of the Canadian dollar (CAD or loonie) in the pre-'Liberation Day' world, but that's not how markets behave today, pointed out the bank.

The two cuts since the start of the year by the BoC to 2.75% have widened the spread with the U.S. to 175bps, but USD/CAD has lost 7.3% since the January peak (1.4793).

A pause is baked in on Wednesday and a hawkish hold could technically trigger covering of short CFTC positions (39.5% of OI, the highest since 'Liberation Day' in April), added SocGen. One final cut to 2.50% is priced in by October.

Technically, USD/CAD is at the trend line since 2021 -- next projections are at 1.3610/1.3570; resistance is 200-DMA near 1.4030. 10-year CAN support zone is at 3.16%/3.13%.