The Canadian economy grew by 0.6% in March, slightly better than expected. USD/CAD reacted with a drop, and is now approaching an important support line. Update on this strong currency.
Canada’s GDP for the month of March grew by 0.6%. This exceeded expectations for a growth rate of 0.5%. It’s important to note that this growth comes on top of weak growth in February – the figure for the previous month was revised to the downside – only 0.2%, worse than 0.3% that was reported beforehand. All in all, traders focused on the recent, better figure. This release concludes the data for the first quarter, and the overall picture is excellent – an annual growth rate of 6.1%, double the growth rate in the US at the same period.
This wasn’t the only piece of good news from Canada:
Also the Raw Materials Price Index (RMPI) exceeded expectations and rose by 1.7%, stronger than 1.3% that was predicted. This is the figure for April, just before the recent turmoil in the markets, so next month will probably be weaker, but this doesn’t matter for now.
USD/CAD dropped from 1.0470 before the release to 1.0430, and the move continues. It’s now at the lowest level in two weeks and targeting the important support line of 1.04. This line worked as a support and resistance line during the past year. A drop under 1.04 will open the road to 1.02, which was the 2009 low and then a resistance line after the pair hit parity.
But this move comes on a day of light trading – British and American traders are on holiday, so there’s isn’t enough money to drive the pair lower. A bounce back up will find resistance at 1.0550, which proved to be a pivotal line last week.
The Bank of Canada meets tomorrow to decide on a new interest rate. These positive figures today raise the chance of a rate hike now. While Mark Carney made it clear that a rate hike was coming, there was no certainty that about the timing – this meeting, or the next one on July 20th.
If they do move on the rates, USD/CAD will already find enough volume to send it lower, below 1.04. Another month of unchanged rates will probably send it back up.
More American and Canadian events are due throughout the week. The climax is on Friday, when Canadian employment figures are due at 11:00 GMT, and 90 minutes later, at 12:30 GMT, the almighty American Non-Farm Payrolls are due. This will be very exciting for USD/CAD traders.
Further reading: Non-Farm Payrolls Preview.
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