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CAD steady but GDP disappoints

The Canadian dollar has consolidated recent gains and is trading quietly on Tuesday. Currently, USD/CAD is trading at 1.2598, down 0.08% on the day. The dollar index is down 0.18% on Tuesday, dipping to 0.9248 in North America.

Canada’s economy contracts in Q2

The Canadian currency missed a golden opportunity to make some inroads against a weak US dollar, as Canada released GDP for Q2. The economy contracted 1.1% (QoQ), missing expectations and surprising the markets. Retail Sales slipped 0.7% in the second quarter and in volume terms, down 0.9%. As well, home resales and exports declined. This marked the first quarterly decline since Q2 of 2020, during the first wave of Covid-19.

The weak GDP will likely shelve any plans that the Bank of Canada had for a second round of tapering, as the weak economy simply doesn’t justify any tightening in policy. With total economic activity 1.5% lower than the pre-pandemic level (February 2020), we can expect the BoC to be in a dovish mood, and any rise in interest rates seems a long way off.

The BoC cannot determine policy simply based on the strength of the Canadian economy; policy makers must also keep a close eye on monetary policy south of the border. If the Fed embarks on a series of tapers and the BoC lags behind, the Canadian dollar could take a tumble.

The markets are looking ahead to the US non-farm payrolls release on Friday. Investors will likely be pleased with a reading of 800 thousand, and a 1.0 million-plus read could result in a taper tantrum. Conversely, a release of 500 thousand or lower would serve to pour cold water on taper hopes and would be bearish for the US dollar.

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 USD/CAD Technical

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For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/ [2]

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Kenny Fisher

Kenny Fisher [6]

Market Analyst at OANDA [7]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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