Canadian dollars pares losses after GDP

The Canadian dollar has edged lower on Tuesday. In the North American session, USD/CAD is trading at 1.3410, up 0.17%. Earlier today, USD/CAD rose as much as 0.57% but the Canadian dollar has pared most of these losses.

Canada’s GDP posts weak 0.1% gain

Canada released GDP for November earlier today, posting a marginal gain of 0.1%. This was identical to the gain in October and a notch above the consensus of no change.  Little change is expected for December, with a preliminary estimate of no change. The economy is projected to expand around 1.6% in the fourth quarter, which is not stellar growth but still a respectable clip.

The weak GDP report is supportive of the Bank of Canada’s plan to pause rates, after last week’s 25-bp hike. BoC Governor Macklem has called the planned hold on rates a conditional pause”, dependent on data conforming to the central bank’s outlook. The most important data that will determine rate policy is inflation, which is the central bank’s paramount concern.  The BoC has now tightened by some 400 basis points since March, but inflation has fallen modestly, from a high of 8.1% in June to 6.3% in December. This is much higher than the Bank’s inflation target of 2%, but the BoC is expecting a more rapid downtrend. The Bank’s Monetary Policy report, released at last week’s meeting, projected that inflation will fall as low as 3% by the end of 2o23 and drop to 2% in 2024. If inflation continues to slow, BoC policy makers will be only too happy to put a pause on rate hikes, which has further squeezed households and businesses that are struggling with high inflation levels.

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USD/CAD Technical

• USD/CAD tested support 1.3314 earlier today. 1.3248 is the next support line
• 1.3418 and 1.3484 are the next resistance lines

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