Canada’s GDP projected to dip

The Canadian dollar is drifting ahead of the North American session. Currently, USD/CAD is trading at 1.2692, up 0.10% on the day.

The US dollar has looked sharp but eased lower on Thursday against the majors. USD/CAD fell 0.56% and dropped into 1.26-territory. This downward move was a result of some profit-taking as well as a slight drop in US Treasury yields. The dollar index is unchanged on Friday at 0.9421. Given the risk-aversion sentiment in the markets and the repricing of Fed tapering, the index should continue its upswing next week, which would boost USD/CAD.

Canada GDP looms

Canada will end the week with a market-mover, with the release of GDP for July. The previous GDP report was positive, with a healthy gain of 0.7%. However, the consensus for the upcoming release is -0.2%, and investors could react negatively to a decline in GDP.

A report showing negative growth is obviously not good news, but unless the reading is well below the forecast, it is unlikely to alter the market’s view that an interest rate hike is coming to a bank near you in 2o22. As Canada slowly navigates out of the Covid pandemic, the economy is grappling with supply bottlenecks, a shortage of workers and high inflation.

The Bank of Canada, taking a page out of the Fed playbook, has argued that inflation is transient. However, CPI jumped 4.1% in August (YoY), marking the fifth consecutive month that inflation has been above the Bank’s 3% ceiling. The prevailing view among investors is that the BoC will hike rates from the current 0.25% in the second half of 2022, but some analysts are projecting a rate rise in the first half of the year. If inflation remains above the 3% level in the coming months, bank policy makers will be under increased pressure to hike rates sooner rather than later.

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 USD/CAD Technical

• USD/CAD faces resistance at 1.2823. Above, there is support at 1.2991, protecting the symbolic 1.30 level
• There is support at 1.2561 and 1.2489

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