USD/CAD remains on backfoot after steady US PCE Inflation and Canada’s weak GDP

The USD/CAD pair remains vulnerable near 1.3630 as the United States Bureau of Economic Analysis (BEA) has reported that the Personal Consumption Expenditure Price Index (PCE) report for April was broadly in line with market expectations.

The report shows that the core PCE Inflation, which is Federal Reserve’s (Fed) preferred inflation gauge, grew parallel with the estimates and the prior reading of 2.8%. On a monthly basis, the underlying inflation data rose moderately by 0.2%, from the consensus and the former release of 0.3%. A 0.2% increase in Federal Reserve’s (Fed) preferred inflation gauge is consistent with the pace required to bring inflation down to the 2% target.

However, it is unlikely to boost expectations for the Fed to begin reducing interest rates from the September meeting. The scenario is historically favorable for the US Dollar. However, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, fell to 104.40. The US Dollar’s appeal is already uncertain due to downwardly revised Q1 Gross Domestic Product (GDP) data.

On Thursday, the US BEA reported that the economy expanded at a slower pace of 1.3% from preliminary estimates of 1.6%.

Meanwhile, the Canadian Dollar performs relatively stronger against the US Dollar but has weakened against other major currencies due to weak GDP figures for different timeframes. Statistics Canada reported that the economy grew by 1.7% on an annualized basis, missed the estimates of 2.2% and Bank of Canada’s (BoC) forecast of 2.8%. On a monthly basis, the economy remained stagnant as expected in March.

Weak economic growth exhibits demand of more stimulus that is fulfilled by adaptation of expansionary policy stance by the central bank. This would deepen hopes of BoC initiating the policy normalization process from the June meeting.