USD/CAD Weekly Forecast: Canada’s slumping GDP reverses the trend to the upside

  • The US Dollar gained some 100 pips during the final week of February as Canadian GDP decelerated way below the market estimates.
  • The USD/CAD broke the trendline resistance to the upside with the US Dollar benefiting from the improved macro picture.
  • The fourth-quarter US GDP rose 2.6%, way above expectations while Canadian GDP missed big time rising only by 0.4%.
  • The US and Canada’s employment reports headline the week ahead in the economic calendar as the Bank of Canada is expected to keep the target rate unchanged while possibly twisting its policy outlook to more neutral.

The USD/CAD rose some 140 pips to 1.3270 over the final week of February ending the week up 1% after the Canadian fourth-quarter GDP growth missed the market estimate big time with the USD/CAD breaking the bearish trend to the upside.

The growth differential between the US and Canada became obvious after the US fourth-quarter GDP rose above forecast by 2.6% while Canada’s GDP at the same time rose only by 0.4%.  While Canada’s inflation only had a marginal currency impact, the miss in the fourth-quarter GDP saw the USD/CAD rising massively about 140 pips on Friday.

Of an important notice to the currency traders is the fact that the currency market reaction came out before the official GDP release implying the data leak from the Statistics Canada.

The USD/CAD broke the bearish trend on Friday after the GDP missed the estimates implying that the Bank of Canada scheduled to convene on Wednesday next week might twist its current policy outlook to more neutral. According to market forecast, economists see no change on the policy rate in Canada next week, but some 5% of forecasters think the Bank of Canada might cut the rates until the year-end.

In term of the economic releases next week, both the US and Canada are scheduled to release the employment report next Friday with the US labor market expected to see some 185K new jobs added in February, the wages up 3.3% y/y and the unemployment rate falling to 3.8%. The unemployment rate in Canada is expected to fall to 5.7% in February.

Technically the USD/CAD broke the bearish trend to the upside with the scheduled data set expected to confirm the growth differential favoring the US Dollar. The technical oscillators including the Momentum and the Relative Strength Index are both pointing upwards on a daily chart with Slow Stochastics generating a bullish crossover near Oversold territory indicating further upside potential.

USD/CAD daily chart

The economic calendar in the week ahead

Canadian economic calendar March 4-8

US economic calendar March 4-8

FXStreet Forecast Poll

The FXStreet Forecast Poll expect the USD/CAD to fall to 1.3191 next week with the bullish-to-bearish estimates ratio at 36%-55% and 9% of sideways predictions. The spot rate though broke above 1.3270 on Friday and the technical picture favors the upside instead.

For the 1-month the USD/CAD is expected to be bullish at 1.3225, which is actually bearish compared with the spot rising strongly on Friday afternoon after weak fourth-quarter Canada's GDP reading.

FXStreet Forecast Poll

 

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