Canadian dollar flat ahead of Canadian GDP

• Canada’s GDP expected to rebound in May
• US releases PCE index

The Canadian dollar is almost unchanged on Friday, trading at 1.3223 in the European session. Things could get busier for the Canadian dollar in the North American session, as Canada releases GDP and the US publishes its preferred inflation indicator, the PCE Price index.

Canada’s GDP expected to improve in May

Canada’s economy stalled in April, as GDP came in at 0.0% m/m. The driver behind the weak reading was a strike by Canada’s largest government worker union in April, causing a drop in economic activity in the public sector. There are expectations for an improvement in May, with a consensus estimate of 0.3% m/m.

Despite the downswing in April, Canada’s economy has been in good shape, with a 3.2% gain in the first quarter. As is the case with the United States, Canada’s labour market has defied expectations and remained robust despite aggressive tightening by the central bank. This has complicated the Bank of Canada’s tough battle to push inflation back to the 2% target and means that additional rate hikes remain on the table.

The BoC released its Summary of Deliberations from the July meeting on Wednesday. At the meeting, the BoC raised rates by 0.25%, bringing the cash rate to 5.0%. The Bank’s Governing Council noted that inflation remained persistent due to the tight labour market and higher-than-expected consumption.

The Federal Reserve didn’t surprise anyone when it raised rates by 0.25% on Wednesday, bringing the benchmark rate to a range of 5.25%-5.50%. Fed Chair Powell reiterated that “policy has not been restrictive enough for long enough”, adding that the Fed could continue tightening. Still, the money markets are betting that the Fed is done with hiking, and have priced in an 80% likelihood of a pause in September.

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USD/CAD Technical

• There is resistance at 1.3272 and 1.3319
• 1.3195 and 1.3148 are providing support

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