According to FX168 Financial News (North America), the GDP report for July is expected to show a slight increase, but growth in the third quarter is likely to be well below the Bank of Canada's forecast. Analysts say this could prompt the Bank of Canada to be more aggressive in cutting interest rates next month.

According to the consistent estimates of Bank of Montreal and Bank of Nova Scotia, GDP in July is expected to grow by 0.1%, higher than the preliminary data released last month, which indicated growth to remain unchanged. Canadian Imperial Bank of Commerce (CIBC), Bank of Nova Scotia (Scotiabank), and Bank of Montreal (BMO) anticipate a month-on-month GDP growth of 0.2% for July. Royal Bank of Canada (RBC) expects growth of 0.1%.

The small increase in monthly growth is expected to keep third-quarter economic growth well below the forecast outlined by the Bank of Canada in its July monetary policy report.

"Even if the results announced in July are better than previously estimated, growth for the quarter will still be only slightly above a 1% annualized pace," CIBC economist Avery Shenfeld wrote in a preview report.

"This is far below the 2.8% pace forecasted by the Bank of Canada in the July MPR, therefore policymakers still have ample reason to continue cutting rates at future meetings, even accelerating the pace of cuts."

RBC Assistant Chief Economist Nathan Janzen and Economist Abbey Xu state that the growth in July will still be "historically weak," leading to output following per capita GDP lower in the third quarter, marking the eighth decline in the past nine quarters.

"Our baseline forecast assumes the Bank of Canada will continue to cut rates by 25 basis points at each meeting, but if the economy significantly slows further, the risks would favor a quicker pace of rate cuts (consistent with the Fed's larger initial 50 basis point cut)," Royal Bank of Canada economists wrote.

Bank of Canada Governor Tiff Macklem reiterated in a speech this Tuesday that with continued progress on inflation – August's inflation rate reached the Bank of Canada's 2% target – there are reasons to expect further downward adjustments in policy rates.

"Economic growth in the first half of this year has rebounded somewhat, and we hope to see further strengthening of economic growth to keep the inflation rate close to the 2% target. Some recent indicators suggest that growth may not be as robust as we expected," McCallum said.

BMO's canadian imperial bank of commerce Interest Rate and Macro Strategist Benjamin Reitzes stated in a report released last Friday that there is no doubt that the central bank will further cut interest rates, "but the extent and pace of the rate cut remain uncertain." He said that this Friday's GDP report "could reinforce expectations for a 50 basis point rate cut in October."

"There are clear signs that the bank of canada may take a more aggressive path. We need to see weak GDP growth and ongoing progress in inflation, while the Fed has already extended a helping hand," Reitzes said.

"There is still some time before the October meeting, but the likelihood of a 50 basis point rate cut is increasing."

The Bank of Canada will announce its next interest rate decision on October 23 and release the quarterly monetary policy report.

According to Reuters, as of Tuesday afternoon, the currency market believes there is a over 58% chance of a substantial 50 basis point rate cut. The pricing has already factored in another 25 basis point rate cut at the final meeting in December this year.