Canadian dollar eyes Can. GDP, US Core PCE

The Canadian dollar is almost unchanged on Friday. USD/CAD is trading at 1.3704 in the European session.

Canada’s GDP expected to rise 0.3%

Canada’s economy has been in low gear, with a flat GDP reading in March. The markets are expecting better news from April GDP, which is expected to rise 0.3% m/m. The Canadian economy is expected to grow by only 0.9% in 2024, compared to estimated growth of 2.3% in the US.

Canadian consumers need relief and lower interest rates would be a major step in that direction. The Bank of Canada lowered rates by a quarter-point earlier to 4.75% earlier this month but policy makers will be hesitant to trim rates again until inflation resumes its downward path. CPI rose 2.9% in May, up from 2.7% in April and core inflation, which excludes volatile items, also accelerated. That has dampened hopes of a back-to-back rate cut at the July 18 meeting.

The central bank is taking a cautious approach to further rate cuts and has stressed that each rate decision will be taken one at a time, based on the data. BoC Governor Macklem said earlier this week that he doesn’t want to lower rates too quickly and jeopardize the success that the BoC has made in bringing inflation below 3%.

The week wraps up with the Federal Reserve’s preferred inflation indicator, the Core Personal Expenditures Consumption index. The markets are expecting that the index dipped to 0.1% m/m in May, down from 0.2% in April. Annually, the market estimate for Core PCE stands at 2.6%, compared to 2.7% in April. A drop in the Core PCE would support a September rate cut, which currently has a probability of 58%, according to the CME’s FedWatch.

USD/CAD Technical

USD/CAD is testing resistance at 1.3711. Above, there is resistance at 1.3747
There is support at 1.3658 and 1.3622

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