Canadian dollar steady ahead of GDP

• Canada’s GDP expected to remain at 0.0%

The Canadian dollar is steady on Thursday. In the North American session, USD/CAD is trading at 1.3602, up 0.11%.

Canada’s GDP expected to flatline

Canada’s economy has been stalling and today’s GDP release is expected to confirm that trend. August GDP came in at 0.0% and no change is expected for the September GDP release. The stagnation in growth fits the Bank of Canada’s view that elevated borrowing costs have dampened demand and growth. The economy recorded a modest contraction in the second quarter and the third quarter is expected to be flat. This backdrop makes a rate hike unlikely, as inflation has been dropping and eased to 3.1% in October, down from 3.8% a month earlier.

The lack of growth has not escaped the watchful eyes of rating agencies. Earlier this week, S&P cut Canada’s GDP growth for this year from 1.2% to 1.1% and from 1.2% to 0.8% in 2024. S&P said Canada would experience a “sluggish growth path for the next several quarters” due to higher interest rates and weak global demand. As a result, S&P says the Bank of Canada has wound up its tightening cycle and will start to cut rates in the second quarter of 2024, and expects the BoC to cut rates by 100 basis points in 2024.

In the US, second-estimate GDP for the third quarter was revised to 5.2%, up from the initial estimate of 4.9%. The sharp gain should ease fears of a recession in the US but also means that the Fed has little reason to trim rates while inflation remains well above the 2% target. The Fed has signalled a ‘higher for longer’ stance on rates but the markets are more dovish and have priced in a rate hike in March 2024 at 45%, according to the CME’s FedWatch tool.

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USD/CAD Technical

• There is resistance at 1.3665 and 1.3735
• 1.3564 and 1.3494 are providing support

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