The Canadian dollar is almost unchanged on Friday. In the North American session, USD/CAD is trading at 1.3483 at the time of writing, down 0.01% on the day.
BoC Expected to Cut for the Third Consecutive Time
The Bank of Canada is likely to lower rates for a third time in as many meetings on Sept. 4. This would make the BoC the leader in rate cuts among the major central banks. The BoC has kept a dovish stance over the last few months and is keeping a nervous eye on Canada’s deteriorating economy. Unless there is a remarkable economic turnaround, the pulse in the markets is that the central bank could cut up to three more times by year’s end and continue trimming rates in early 2025.
Interest rates have come down but remain elevated at 4.5% and the BoC wants to provide some rate relief and avoid a recession. The BoC would like to slash rates but has to keep a close eye on the Federal Reserve so as not to diverge too much from the Fed. In other words, if the Fed is aggressive in its rate cutting in the following months, the BoC is likely to follow suit.
Canada’s GDP Rises Slightly, US Core PCE Unchanged
The week wrapped up with tier-1 events on both sides of the border. Canada’s economy improved slightly as second-quarter GDP rose to 0.5% y/y, up from 0.4% in Q1 and in line with market expectations. Annually, GDP grew 2.1% in the second quarter, after an upwardly revised 1.8% gain in Q1 and well above the market estimate of 1.6%.
The US core PCE Price index, the Fed’s preferred inflation indicator, came in at 0.2% m/m in July, unchanged from June and in line with the market estimate. Annually, the index remained unchanged in July at 2.6%, below the market estimate of 2.7% and matching the market estimate. The release hasn’t had much impact on rate expectations, with the market's pricing in a quarter-point cut around 70% and an oversized half-point cut at 30%.
USD/CAD Technical
- 1.3500 is a weak resistance line. Close by, there is resistance at 1.3516
- There is support at 1.3475 and 1.3459