USD/CAD eyes Canada’s GDP

The Canadian dollar is steady on Friday. In the European session, USD/CAD is trading at 1.3476 at the time of writing, up 0.08%.

Canada’s GDP for July is expected at 0.1% m/m, unchanged from June. The economy managed a respectable gain of 2.1% y/y in the second quarter but the third quarter is likely to be much weaker, barring a spectacular turnaround.

The Bank of Canada has been at the forefront of the major central banks in the new rate-cutting cycle. The BoC has already cut three times this year but the economy has been slow to respond. Exports fell in the second quarter and manufacturing and construction continue to weigh on the economy, which is being driven by the services sector.

The BoC, like the Federal Reserve, is expected to remain aggressive and continue trimming rates. With the tough battle against inflation largely won, there is room for further cuts and the markets anticipate cuts of 150 basis points by late 2025. The BoC meets next on October 23. The BoC will be keeping a close eye on the Fed’s rate path, as it doesn’t want Canadian rates to diverge widely from those in the US. Currently, rates in Canada are at 4.25% and 5%-5.25% in the US.

The US will release Core PCE Price Index today, which is considered the Fed’s favorite inflation gauge. The index has hovered at 2.6% for the past three months and is expected to tick up to 2.7% for August. Monthly, the Core PCE is expected to remain at 0.2%. A surprise reading could shake up the US dollar and the rate-cut odds for the Fed’s November meeting. The odds of a 50-basis point continue to swing and are currently at 50%, with a 50% chance of a modest 25-bps reduction.

• USD/CAD is testing resistance at 1.3474. Close by, there is resistance at 1.3491
• 1.3449 and 1.3432 are the next support levels