USDCAD has a double data release ahead on Friday with Canadian GDP and US non-farm payrolls.
The USDCAD pair has found some resistance at the 1.3635 level, which has rejected the dollar on two other occasions since May.
Canada’s GDP is expected to come in at 1.2% from 3.1% as the economy slows due to weaker global demand and higher interest rates. A Reuters poll of economists predicted a sharp growth slowdown that could lead the Bank of Canada to pause its interest rate hikes despite higher inflation in recent data.
The GDP report will be the last important data set before the central bank makes its next policy decision on Sept. 6. The BoC had earlier estimated growth of 1.5%. The market would see some relief after the latest consumer price index report showed inflation rising above 3% in July, which is still far from the BoC’s 2% target and raises expectations for another rate hike in September. The central bank has said it will study the economic data closely before its next meeting.
“We think this print is very important for the BoC’s decision,” said Carlos Capistran, head of Canada and Mexico economics at Bank of America.
“The BoC is in data-dependent mode and has not closed the door to further hikes.
Some of the expected slowdowns in the second quarter could be due to transitory factors, such as wildfires, energy project maintenance, and civil servant strikes.
“If there are clear signs the economy is slowing, that will likely give the BoC comfort that it can hold the line at 5% for now and see more data,” said Benjamin Reitzes at BMO Capital Markets.
Money markets have priced in a 70% chance that the BoC will pause in September but move towards further tightening by the end of the year, which would result in interest rates peaking at 5.25% in the current cycle.
“If domestic demand still looks too strong, led by a rebound in housing and consumer spending on services, and the July figure points to a decent start to Q3, the BoC may still choose to continue hiking interest rates at the September meeting,” said Andrew Grantham, a senior economist at CIBC Capital Markets.
The United States jobs market will also be in focus, with an expected slowdown from 187k to 170k jobs added. That will also give the Federal Reserve reason to pause.
