USD/CAD – Canadian dollar edges lower ahead of US, Canadian Mfg. PMIs

• Canada’s GDP rose 0.1% in March
• US, Canada to release Manufacturing PMIs

After a 2 day mini-rally, the Canadian dollar is lower on Monday. In the European session, USD/CAD is trading at 1.3569, up 0.20%.

Canada’s GDP ekes out 0.1% gain

Canada’s GDP came in at a paltry 0.1% in February, missing the 0.2% estimate and weaker than the upwardly revised 0.6% in January, according to Statistics Canada. The preliminary estimate for March is -0.1%, which points to the strong start in January quickly fizzling. On an annualized basis, growth is projected at a respectable 2.5%.

The weak growth shows that the economy is feeling the effect of the Bank of Canada’s rate tightening, with the benchmark cash rate at 4.5%, its highest level since 2007. The BoC could deliver further rate hikes until the slowdown in growth translates into lower core inflation, which fell from 4.9% to 4.5% in March but is still more than double the 2% target. At the April rate meeting, in which the BoC paused on rates, Governor Macklem signalled that there would be no rate cuts until 2024.

The Canadian economy is clearly slowing down, raising expectations that the labour market, which has been surprisingly resilient, will also cool off. The unemployment rate has remained around 5%, despite the BoC’s aggressive tightening. Employment levels lag several months behind growth, and the BoC is hoping that the labour market will weaken and help push inflation levels lower.

The week kicks off with Manufacturing PMIs on both sides of the border. The manufacturing sector continues to struggle across the globe, and Canada and the US are no exception. Canada’s PMI is expected to rise in April from 48.6 to 50.5, which would point to stagnation. In the US, manufacturing has declined for five straight months, with readings below the 50.0 level. The estimate for April stands at 46.6, following 46.3 in March.

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USD/CAD Technical

• 1.3492 and 1.3435 are providing support
• 1.3580 is under pressure in resistance. Above, there is resistance at 1.3711

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