USD/CAD drops further on the back of GDP data and crude oil rally

• CAD among top performers on the back of data and oil’s rally.
• USD/CAD approaching key strong support near 1.2880.

The USD/CAD pair is falling sharply on Friday, losing more than a hundred pips and the Loonie is among the top performers of the day. In a few hours, it erased weekly gains.

USD/CAD was already trading lower and accelerated the decline following Canadian GDP data. The slide continued during the American session on the back of a rally in crude oil prices. The pair opened the day around 1.3030 and it just bottomed at 1.2909, the lowest level since last Friday.

Crude oil is gaining more than 1.5% with the WTI trading at $73.50 a barrel, at the highest level in two months. The greenback weakened across the board during the last hours and trimmed gains.

The other key driver of CAD’s strength was GDP data. In July, the economy expanded at a 0.2% rate above the 0.1% expected. “With the increase in July, Q3 GDP growth is tracking almost a percentage point above the Bank of Canada’s call in July for a 1.5% increase (and our own call for a 1.6% gain) in large part, though, because of a smaller-than-expected transitory decline in oil production. Less of a drag from that factor in Q3 also means less of a rebound in Q4 to leave underlying trends running about as expected “” and still looking quite solid. Fears of significant trade disruptions with the U.S. have not gone away but, in the mean-time, the economic backdrop still looks clearly strong enough to warrant further Bank of Canada interest rate hikes.”, said Nathan Janzen, Senior Economist at RBC Capital Markets.

Levels to watch

Despite the dramatic decline, USD/CAD is not showing signals of a consolidation. To the downside, the immediate support is seen around 1.2900, a break lower would expose September and August lows at 1.2880/85, a key barrier that if broken would open the doors to more losses. On the upside, resistance levels could be located at 1.2945, 1.2970 (Sep 25 high) and 1.3005.