Canadian dollar steady, GDP stagnates

The Canadian dollar showed some strong gains earlier today but has pared most of these gains. In the European session, USD/CAD is trading at 1.3627, down 0.14%. February was the Canadian dollar’s worst month since September 2022, as the Canadian dollar fell 2.5% against the greenback.

Canada’s GDP comes up flat

Canada’s economy looked sluggish in the fourth quarter, with an unimpressive growth rate of 0.0% y/y. This was far worse than the estimate of a 1.5% gain and below Q3’s downwardly revised gain of 2.3%. The Bank of Canada had projected a 1.3% gain in Q4. In December, GDP actually shrank by 0.1%, following a 0.1% gain in November and below the estimate of 0.0%.

Any way you slice ’em, the GDP numbers aren’t good, but they could prove to be a blessing in disguise for the central bank. A slowing economy will give the BoC an excuse to pause at the March 22 meeting. This would be a significant move, as the BoC hasn’t paused since the current rate-tightening cycle began in January 2023. Governor Macklem has signalled that he would like to hold rates, which are currently at 4.50%.

With the economy slowing and inflation falling to 5.9% in January (down from 6.3% in December), economic conditions seem appropriate for a pause in rate increases. Even if the central bank does pause next week, it’s doubtful that the BoC can afford to stay on the sidelines for very long, as inflation remains almost triple the target of 2%.

In the US, this week’s releases have been far from impressive. Earlier today, Conference Board consumer confidence for February slipped to 102.9, down from 106.0 in January and below the estimate of 108.5 points. This follows Durable Goods Orders for January, which plunged 4.5% following a 5.6% gain in February and missed the forecast of -4.0%. If upcoming releases continue to miss expectations, we could see the markets shift their rate pricing downwards and again talk about a Fed pivot.

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USD/CAD Technical

• 1.3701 and 1.3784 are the next resistance lines
• 1.3571 is a weak support line, followed by 1.3478

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