USD/CAD holds steady as US PPI beats forecasts, Canadian GDP contracts

USD/CAD trades around 1.3680 on Friday, virtually unchanged on the day.
US Producer Price Index inflation slowed to 2.9% YoY in January, beating market expectations.
Canada’s Gross Domestic Product contracted by 0.6% in the fourth quarter, versus forecasts for no growth.

Ghiles Guezout FXStreet

USD/CAD trades around 1.3680 at the time of writing on Friday, virtually unchanged on the day, as investors digest a fresh batch of macroeconomic data from the United States (US) and Canada.

In the US, producer price inflation sended mixed signals. The Producer Price Index (PPI) eased to 2.9% YoY in January, down from 3% in December, according to data released by the Bureau of Labor Statistics (BLS). However, the reading came in above market expectations of 2.6%, highlighting more persistent underlying price pressures than anticipated. On a monthly basis, the index rose by 0.5% after a revised 0.4% increase in December, while the index excluding food and energy climbed 3.6% YoY, also exceeding forecasts.

Despite the firmer-than-expected figures, the US Dollar Index (DXY), which measures the performance of the US Dollar against a basket of six major currencies, remains capped below the 98.00 mark and shows no significant reaction. This relative stability limits moves in USD/CAD, as traders appear to be waiting for clearer signals regarding the monetary policy path of the Federal Reserve (Fed).

In Canada, the picture is more negative. Gross Domestic Product (GDP) contracted at an annualized rate of 0.6% in the fourth quarter, following a revised 2.4% growth in the previous quarter, according to Statistics Canada. The consensus forecast had pointed to flat growth. On a quarterly basis, the economy declined by 0.2%, reversing the 0.6% expansion recorded in the third quarter. The statistical agency notes that annual growth was weighed down mainly by lower exports, particularly to the United States.

Economic Indicator

Producer Price Index (YoY)

The Producer Price Index released by the Bureau of Labor statistics, Department of Labor measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Generally speaking, a high reading is seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish).

Economic Indicator

Gross Domestic Product Annualized

The Gross Domestic Product (GDP), released by Statistics Canada on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in Canada during a given period. The GDP is considered as the main measure of Canada’s economic activity. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.

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