USD/CAD: Upside focus on 1.40 target – TD Securities

TD Securities analysts note that USD/CAD has been resilient despite stronger Canadian GDP data, as month-end and quarter-end Dollar demand offsets other forces. The pair has broken above its mid-January highs and they now highlights 1.40 as the next key level.

Pair eyes next key resistance zone

"The near-term growth outlook looks a touch stronger after the 0.1% m/m increase for industry-level GDP in January, with GDP printing above the market consensus for a flat print and TD's forecast for -0.1% m/m. Details were mostly upbeat, with no material headwinds outside the outsized pullbacks in manufacturing and wholesale trade, which were already foreshadowed in the monthly reports from Statistics Canada. "

"The upside surprise on January without any sign of giveback in February has introduced upside risk to our prior forecast for Q1 GDP (+0.9% saar), but it's still not enough to validate markets that remain priced for nearly 50bps of tightening by December."

"Although a robust GDP report was buoyed by oil and gas even before the conflict began, USD/CAD has stayed stable as month- and quarter-end USD buying counterbalances other pressures. After surpassing its mid-January highs, USD/CAD continues to rise, with 1.40 emerging as the next important target. "

"The Bank was already working with a 1.8% projection for Q1 GDP, so the upside surprise in today's report should move the market a little closer to the Bank's forecast, rather than introducing upside risks to the BoC's forecast. Labour market headwinds and softer core inflation momentum give the Bank more incentive to stay on the sidelines through 2026, and we continue to look for the next rate hike in 2027Q1."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)