Canadian dollar slips after BoC decision, USD GDP looms

  • US to release

The Canadian dollar is showing limited movement on Thursday. In the European session, USD/CAD is trading at 1.3513, down 0.08%.

Bank of Canada keeps rates on hold

There were no surprises from the Bank of Canada, which maintained the benchmark rate at 5% on Wednesday. The rate has remained the same since July and it looks very likely that the central bank has wrapped up its rate-tightening cycle, barring a huge turnaround in inflation, which has been generally moving lower.

Governor Macklem said in a follow-up press conference that inflation is still too high and that it was “premature” to be discussing lowering interest rates. Macklem said that he was concerned about “persistence in underlying inflation” and that more time was needed to let monetary policy do its work.

Macklem’s pushback was fairly predictable, as he needed to convey a clear message that the battle against inflation is not yet over. The Canadian Imperial Bank of Commerce and the Bank of Montreal both stated after the BoC decision that they expect a rate cut in June. The markets are more bullish and have priced in a rate cut in April at 66%. If inflation moves closer to the 2% target, the odds of an April cut will likely rise.

The US economy continues to churn out solid numbers and the January PMI reports were better than expected. The services PMI rose to 52.9, up from 51.4 in December and above the market consensus of 51.0. This marked a seven-month high. The manufacturing PMI clawed into expansion territory with a reading of 50.3, up from 47.9 in December which was also the consensus estimate. This was the highest level since October 2022.

The US releases first-estimate GDP for the fourth quarter later today. The consensus estimate stands at 2.0%, which follows a sparkling 4.9% gain in the third quarter, which was the highest growth rate since Q4 2021. If the estimate is wide of the mark, we could see a strong reaction from the US dollar in the North American session.

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USD/CAD Technical

  • USD/CAD is putting pressure on support at 1.3494. Below, there is support at 1.3459
  • There is resistance at 1.3558 and 1.3593

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
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.