The Canadian dollar is slightly higher on Thursday. USD/CAD is trading at 1.3537 in the North American session, down 0.23%.
Canada’s GDP rebounds with 0.6% gain
Canada’s GDP bounced back with a strong gain of 0.6% m/m in January, after a 0.1% in December. This beat the market estimate of 0.4%. The preliminary estimate for February’s GDP stands at 0.4%, which means that so far, growth in the first quarter is looking solid. This is a major turnaround for the Canadian economy, which narrowly avoided a technical recession in the second half of 2023.
The Bank of Canada meets next on April 10th and the improvement in GDP would support the BoC taking its time before cutting rates. The BoC has held the benchmark rate at 5% six straight times and is looking for the economy to cool and inflation to fall further before it lowers rates. At the same time, households are groaning under the weight of high interest rates, which is putting some pressure on the BoC to provide some relief by lowering rates.
US GDP revised to 3.4%
The US also released GDP for the fourth quarter, with the third and final estimate being revised upwards to 3.4% y/y, up from 3.2% in the second estimate and beating the market estimate of 3.2%. The GDP release was respectable but sharply lower than the 4.9% gain in Q3, which indicates that the US economy is cooling down due to elevated interest rates.
The Federal Reserve has sounded more hawkish about rate policy lately. Fed Governor Christopher Waller said on Wednesday that inflation had not fallen as quickly as expected and “there is no rush to cut the policy rate”. Earlier in the week, Atlanta Fed President Rafael Bostic lowered his forecast to just one rate cut in 2024, after saying in February that he expected two rate cuts this year.
USD/CAD Technical
- USD/CAD is testing support at 1.3559. Below, there is support at 1.3503
- 1.3661 and 1.3717 are the next resistance lines
