Friday’s US and Canadian growth results left the US Dollar Canadian Dollar exchange rate plunging at the end of the week as the pair quickly shed its Thursday recovery.
USD CAD looked to end the week near its lowest levels in two years, below the level of 1.25.
US growth stats weren’t exactly disappointing, they look to meet expectations of 2.6% quarter-on-quarter. However, as PCE prices fell short and Michigan’s inflation expectations survey disappointed too, Fed rate hike bets weakened again.
In comparison, Canada’s May Gross Domestic Product (GDP) report was highly impressive. Canadian growth was forecast to come in at 0.2% month-on-month but surged to 0.6%. Yearly growth beat expectations of 4.2% by rising from 3.3% to 4.6%.
Overall the US Dollar to Canadian Dollar outlook is lower now but next week’s US job stats could boost Fed rate hike bets again if they impress.
[Published 10:29 BST 28/07/2017]
The US Dollar Canadian Dollar exchange rate held its ground above the week’s opening levels on Friday morning, as the Canadian Dollar lacks purchase-appeal ahead of Friday’s key growth reports. USD CAD began this week at 1.2538 and after briefly hitting a two-year-low of 1.2418 on Thursday the pair recovered to around 1.2550.
US Dollar (USD) Outlook Mixed as Political Jitters Return
The US Dollar recovered from its worst levels since 2015 against the Canadian Dollar at the end of the week, thanks to an impressive US durable goods orders report from June.
Durable goods orders were expected to improve from -1.1% to around 3%, but instead they surged from a revised -0.1% to an impressive 6.5%.
In response to the news, markets briefly became more confident that the US economy would support a third 2017 interest rate hike from the Federal Reserve. This pushed the ‘Greenback’ higher.
However, the US Dollar outlook became murky again at the end of the week as the latest attempt by the Republican Party to repeal the Affordable Care Act (ACA) failed.
As US President Donald Trump has failed to secure some major legislative wins despite Republicans controlling both parts of Congress, market confidence in the administration has slipped.
Traders are concerned that Trump will also struggle to push through his plans for tax and infrastructure, which has weighed on US economic confidence. Fed rate hike bets dropped again at the end of the week.
Overall though, US Dollar investors are awaiting Friday’s US Gross Domestic Product (GDP) projections before making any late-week moves on the currency.
If US growth meets or beats expectations, investors will become more hopeful that the US economy is still strong enough to support another interest rate hike later in the year.
The latest PCE price projections and Michigan’s consumer confidence surveys will also be highly influential, as they will indicate how US inflation has been performing. This will be vital for Fed rate hike bets too.
The US Dollar outlook will be further influenced by next week’s vital domestic ecostats, which include ISM’s July PMIs and July’s Non-Farm Payroll report.
Canadian Dollar (CAD) Traders Await Growth Stats
The Canadian Dollar has seen strong performance in recent weeks in response to the Bank of Canada’s (BOC) July interest rate hike, helping it to briefly push USD CAD down to multi-year-lows.
Still, investors have also lacked any fresh reasons to buy the Canadian Dollar in the past week. Prices of oil, Canada’s most lucrative commodity, have been decent, but there just isn’t much on the horizon for CAD traders to get excited about since the rate hike took place.
As a result, the Canadian Dollar trended limply as the US Dollar recovered yesterday, with ‘Loonie’ investors awaiting Friday’s Canadian Gross Domestic Product (GDP) results from May.
If Canadian growth is solid or even exceeds expectations, the Canadian Dollar could push USD CAD lower towards the end of the week as investors perceive the BOC’s latest actions as justified.
However, if Canadian growth falls short markets could begin to panic that the Bank of Canada was premature in hiking Canada’s interest rates.
In this scenario, the Canadian Dollar would see weaker trade until clarification on the monetary policy outlook is given by BOC officials.
Next Friday’s Canadian data will also be influential, as Canada’s June trade balance and July employment report will be published.
USD CAD Interbank Rate
At the time of writing this article, the US Dollar Canadian Dollar exchange rate trended in the region of 1.2550. The Canadian Dollar to US Dollar exchange rate traded at around 0.7964.