- Canada’s GDP went up by 0.1% in July.
- Canada’s GDP is still significantly below BoC’s 2% forecast.
- The BoC might pause rate hikes after October, according to economists.
Today’s USD/CAD outlook is bearish as Canada’s economic activity unexpectedly accelerated in July. According to figures from Statistics Canada, the Canadian economy expanded by 0.1% in July as opposed to the 0.1% decline analysts had anticipated.
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According to economists, the modest increase in July and the expected lack of growth in August point to third-quarter annualized GDP growth of approximately 1%, which is significantly lower than the Bank of Canada’s most recent forecast of 2.0%.
“After a solid first half of the year, momentum appears to be slowing as multi-decade-high inflation and rapidly rising interest rates weigh on the economy,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Economics, said in a note.
The Bank of Canada raised interest rates by 75 basis points to 3.25% earlier this month to combat inflation, which started to ease in July but is still running at levels not seen in over four decades.
Hot inflation suggests that the Bank of Canada will probably raise interest rates at its meeting in late October, but things could change after that, according to experts.
“The deceleration in economic momentum is why we see the Bank of Canada only hiking rates once more in October,” Mendes said.
USD/CAD key events today
Investors are awaiting the US’s Core Personal Consumption Expenditure (PCE) Price Index. It tracks changes in the cost of consumer goods and services, excluding food and energy, purchased for consumption. It is a crucial tool for tracking inflation and shifting purchasing trends.
USD/CAD technical outlook: Sellers on the brink of breaking below the 30-SMA
Looking at the 4-hour chart, we see the price trading at the 30-SMA and the RSI close to 50. The price is trading at a zone where bears are testing the strength of bulls. Bears have become stronger after the price made a double top at the 1.3801 resistance level with a bearish RSI divergence.
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This was the first sign of weakness in the uptrend. The second sign is how the price consolidates close to the SMA instead of bouncing and pushing higher. If the bears win, the price will break below the SMA and head for support at 1.3.3525.
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