Canada’s GDP stagnates, but loonie steady

The Canadian dollar is slightly higher in Tuesday trading. Currently, USD/CAD is trading at 1.2619, down 0.22% on the day. The pair continues to show volatility. USD/CAD climbed sharply higher late last week, but the Canadian dollar has rebounded and gained close to one per cent so far this week.

Much of this volatility in USD/CAD is attributable to significant movement in US bond yields. Late last week, 10-year Treasuries rose as high as 1.6% per cent. This upward move boosted the US dollar against the major currencies, and USD/CAD climbed close to 1% last week. However, US bond yields have since stabilised and 10-year yields are currently back around 1.40%, which has resulted in the US dollar losing ground. If US bond yields continue to fluctuate, traders can expect further volatility from USD/CAD.

Canada releases GDP on a monthly basis, unlike most major economies which release GDP each quarter. Economic growth was stagnant in December, with a negligible gain of 0.1%. Still, the Canadian dollar has shrugged off the soft release and is in positive territory on Tuesday, as the 0.1% reading matched the forecast.

As the global economy slowly emerges from the Covid pandemic, global demand has been increasing, and this has boosted manufacturing. Canada has also benefited, as Manufacturing PMI improved to 54.8 in February, up from 54.4 beforehand. This marked eight successive months of growth, with readings above the 50-level, which separates contraction from expansion. Manufacturing remains a bright spot in what has been a bumpy recovery for the Canadian economy.

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USD/CAD Technical

• There is resistance at 1.2827, which has held since early February. Above, we have resistance at 1.2921
• On the downside, there is support at 1.2553, followed by a support level at 1.2373
• USD/CAD tested the 100-day moving average on Friday and Monday, and this line remains relevant. It is currently situated at 1.2724

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