USD/CAD Canadian GDP and US Unemployment Claims Pressure Loonie

The loonie is falling against the USD after the U.S. employment claims numbers and Canadian GDP figures were published. The Canadian economy showed no growth at 0.0 percent. The USD was in need of some good news and it got them as unemployment claims dropped below forecast to a weekly 262,000 new claims. The combination of economic releases resulted in the USD/CAD gaining some traction and breaking out of the 1.2000 to 1.2050 range and trading upwards of 1.2070.

The Canadian gross domestic product (GDP) was expected to contract at -0.1 percent given the oil price drop. The surprise to the upside was that retail and financial services were able to offset the lower crude prices, but not enough to get the market excited and the U.S. data provided stronger direction. Statistics Canada who provides the growth data issued a revision to the January data with a downward update that leaves the monthly growth at -0.2%. The Canadian economy is heading to a weak first quarter as already forecasted by the Bank of Canada at zero percent growth but no contraction . The silver lining is the fact that although not enough to push GDP into positive territory retail and financials were able to get to a flat reading. With the oil industry under pressure to keep cutting jobs as revenues were hit by the impact of lower prices other exports have yet to take a bold step forward into filling that gap.

The U.S. dollar is riding the wave started by the FOMC statement yesterday. While not a glowing endorsement of U.S. economic strength it did not signal a change of course for the Federal Reserve whose members still see a benchmark interest rate hike later this year. The question of the timing has been left dependant on economic data. This adds some volatility to data releases and explains some of the enthusiasm for the U.S. unemployment claims release that marked the best week in 15 years boosting the USD against all major currencies.

Tomorrow’s release of the Institute for Supply Management Manufacturing Purchasing Manager’s Index will give the American economy another opportunity to impress. Although the ISM Manufacturing PMI has failed to do that on a monthly basis since December of 2014. The Federal Reserve mentioned in their statement that a strong USD and transitory effects such as weather and the oil supply glut have had a negative impact on the economy. The fact that they are considered transitory factors while others such as employment are still considered resilient continues to build expectations of a rate hike later this year if the U.S. manages to awaken from its winter slumber.

There are no Canadian releases on Friday which means the loonie will have to be at the mercy of the ISM index and the reaction it triggers in the market. An above expectations of 52.1 will boost the USD as it breaks the underperforming trend started in 2015. Another failure to print above forecasts can make the USD/CAD stumble again below 1.20 if the manufacturing index continues to show the transitory effects are no so temporary as the Fed thinks.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza