USD/CAD Loonie Recovers Ahead of U.S. FOMC and Q2 GDP

  • US FOMC to Hold Rates But September Hike in View
  • US 2Q GDP to Show Economy Back to Growth
  • Canadian monthly GDP Expected Flat

The USD got off to a slow start this week as it gave back most of the gains from Friday against the CAD. A bout of profit taking took place against the USD ahead of the Fed’s monetary policy statement and the advance release of second quarter growth data. The USD/CAD is trading at 1.3030, but the CAD was able to appreciate as far as 1.2995 before the main themes driving the loonie put downward pressure on the Canadian currency: lower oil prices and hints of lower demand for commodities from China.

U.S. economic data will be front and center this week. From a fundamental view the main event will be the release of the second quarter advance gross domestic product (GDP). The first quarter of the year was one to forget and the American economy contracted due to weather and other factors. The Q2 GDP will be released Thursday, July 29 at 8:30 am EDT. The forecasts call for an impressive 2.6 percent that could dispel the fears that the same factors that eroded growth in the first quarter could linger. The Federal Reserve will start its two day meeting on Tuesday with a final release of the Federal Open Market Committee (FOMC) on Wednesday, July 28 at 2:00 pm EDT.

The USD/CAD pair will be guided by the divergence in the economic health of both nations. While the U.S. had a first quarter to forget it had managed to hit 5 percent growth in the third quarter of 2014. Canada on the other hand seems to be stagnating with a slow and steady GDP that was counting on higher commodity prices to stay afloat. The lower loonie so far has not been able to boost exports with the goal of offsetting the oil price loses. This week the market will witness a tale of two GDPs as the U.S. is expected to bounce back and give the Fed the data to justify an interest rate hike in September. The Bank of Canada was forced to cut rates as the timing of the U.S. rate hike became more nebulous and action was needed in spite of the Fed’s much-awaited monetary policy decision. The 25 basis points cut has left the Canadian benchmark rate at a record low of 0.50 percent and the marked has already priced in another rate cut before the end of the year which will put further downward pressure on the loonie.

USD/CAD events to watch this week:

Tuesday, July 28
10:00am USD CB Consumer Confidence
Wednesday, July 29
2:00pm USD FOMC Statement
2:00pmUSD Federal Funds Rate
Thursday, July 30
8:30am USD Advance GDP q/q
8:30am USD Unemployment Claims
Friday, July 31
8:30am CAD GDP m/m

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza