The Canadian dollar is drifting on Thursday. In the European session, USD/CAD is trading at 1.3585, down 0.06%. A day earlier, the Canadian dollar dropped below 1.3600 for the first time since March 13.
Canada’s GDP expected to expand by 0.8%
Canada releases the fourth quarter GDP report later today with a market estimate of 0.8% y/y. This would mark a strong turnaround after a weak reading in Q3 of -1.1% . The US economy showed surprising strength in the fourth quarter and this is expected to have boosted Canada’s economy.
The Bank of Canada, which has stressed that its rate policy will be dependent on key data, will be keeping a close eye on the GDP release, which is the last tier-1 event before the policy meeting on March 6. If GDP matches or beats the market estimate, it would point to stronger economic growth and would support the BoC continuing its “higher for longer stance”.
The BoC last raised interest rates in July, bringing the cash rate to 5.0%. Governor Tiff Macklem hasn’t pushed back hard against rate cut expectations but has cautioned that the BoC will need to see a number of months of deceleration in inflation before it considers lowering rates.
In the US, the markets have priced in three rate cuts this year. In December, when the Fed signaled it expected to lower rates three times this year, market optimism rocketed and investors priced in up to six rate cuts in 2024. The Fed’s strong pushback against these expectations and the robust US economy have forced the markets to slash rate cut expectations, which are currently in line with the Fed projection of three rates cuts this year, with a first cut likely in June or September.
USD/CAD technical
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USD/CAD is putting pressure on support at 1.3569. Below, there is support at 1.3533.
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1.3615 and 1.3651 are the next resistance lines.
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