USD/CAD Parity Battle Continues on Slower Canadian Growth

Canadian monthly GDP rose by 0.3% in February, slower than expected. This sets the stage for a close above parity this week. Will the rate decision wait?

The rise of 0.3% missed early expectations that saw a 0.5% growth rate in February, although some economists saw this smaller growth rate. This was half of January’s growth rate of 0.6%. There are now growing signs that the battle for USD.CAD parity will continue:

The slower growth rate came despite a one time event on February – the winter Olympics that were held in Vancouver on February. The figure could have been lower without this event.

The slower growth could be the tipping for the rate decision. In the last decision, the BOC made it clear that a rate hike is coming – they removed the conditional comment and  acknowledged  the improving state of the economy. Yet the timing of the rate decision, either the upcoming decision on June 1st or the next one on July 20th, is still unknown. This figure could determine that the decision will fall on July.

The first release of American GDP, published at the same time, also fell short of expectations – an annual growth rate of 3.2% versus 3.4% that was predicted.

Also note that the RMPI – Raw Materials Price Index, published together with the GDP, rose by 0.8%, also less than 0.9% that was expected.

Mark Carney, in a speech yesterday, expressed his discontent with the recent strength of the Canadian dollar. Carney admitted that the loonie did have reasons to rise: the stronger economy and the higher oil prices back this rise, yet he hinted that the central bank was ready to act if speculators were to send the loonie higher.

USD/CAD is now trading at 1.0060. After finally closing under 1 last week, it will probably close above parity this week. It already traded under parity, at 0.9970 at the beginning of the week, and then almost reached 1.02 – the 2009 low. Most moves happened due to risk aversion / appetite moves on the Greek crisis, which is spreading to other countries as well. Now we have the impact of Canadian events as well.

Next Friday, we have employment figures in both North American countries. Both the Canadian employment change and the American Non-Farm Payrolls are predicted to rise – both are very important indicators. The battle on parity continues.

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