USD/CAD: Trading the Canadian GDP

Canadian GDP is a measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the Canadian dollar.

Indicator Background

The Canadian GDP is released monthly, unlike most other developed countries which post GDP on a quarterly basis. The key indicator provides an excellent indication of the health and direction of the economy. Traders should pay close attention to this indicator, as an unexpected reading can quickly affect the movement of USD/CAD.

Canadian GDP bounced back in June, posting a respectable gain of 0.6% in June, above the forecast of 0.4%. However, the markets are expecting a softer gain in the July report, with an estimate of 0.3%.

Sentiments and levels

The FED didn’t raise rates last week, but its “hawkish hold” stance is bullish for the US dollar. Canada’s economy continues to show weakness, as underscored by disappointing retail sales and CPI numbers last week. So, the overall sentiment is bullish on USD/CAD towards this release.

Technical levels, from top to bottom: 1.3457, 1.3353, 1.3219, 1.3081, 1.2990 and 1.2900.

5 Scenarios

1. Within expectations: -0.1% to +0.6%. In such a scenario, USD/CAD is likely to rise within range, with a small chance of breaking higher.

2. Above expectations: 0.7% to 1.1%: An unexpected higher reading can send the pair below one support line.

3. Well above expectations: Above 1.1%: A surge by the indicator would likely push USD/CAD downwards, and a second support level might be broken as a result.

4. Below expectations: -0.3% to +0.1%:  A weak reading could cause the pair to climb and break one level of resistance.

5. Well below expectations: Below -0.4%. A strong contraction in economic growth would likely hurt the loonie and USD/CAD could break above a second resistance level.