On Tuesday, the Canadian Dollar (CAD) experienced a notable drop against the US Dollar (USD). The reversal put a stop to the Loonie’s very decent six-session streak of gains. Trade headlines ruled the market cycle, paving the way for a dollar bearish trade to take hold. This combination of events led the USD/CAD exchange rate to rise back over the 1.3750 level. With the Canadian economy now in a technical recession, panic has set in. With key GDP numbers coming out this Friday, all eyes are on this topic.
Forecasts have the first quarter Canadian GDP coming in at 1.7%, a decrease from 2.6% year-over-year. This significant downturn comes as a result of a list of growing challenges for the Canadian economy, particularly in the area of international trade. In response, private-sector businesses have been forward-looking, front-loading industrial and warehouse orders during Q1. It’s still unclear how this will lead to better long-term economic performance.
Factors Impacting the Canadian Economy
The Canadian economy is facing the perfect storm of high interest rates, elevated inflation and a declining population. Trade relations have changed dramatically, creating confusion for companies and consumers across the country. One other TRIP-related Canada consideration The CAD’s performance usually depends on commodity prices, especially oil, which is Canada’s biggest export. Fluctuations in oil prices can directly affect the Loonie’s value, creating a sensitive relationship between global market trends and Canada’s economic health.
Over the last few trading sessions, President Donald Trump has done a bit of back pedaling. He retreated from his threats to slap a new 50% tariff on European products. Nonetheless, this decision has removed some trade friction that might have otherwise hurt the CAD even more. Yet for all that optimism, the postponement of these import tariffs until July 9 still looms over economic projections. Analysts have said these creations are likely to increase CAD volatility. The same will happen as traders, in increasing numbers, start to price climate risk into their trades.
The market continues to be fixated on the next important data points that could steer the CAD’s short-term direction. Important US inflation numbers will be released on Friday. Incorporating the most recent Personal Consumption Expenditure Price Index (PCE) inflation into the ACT. These figures are expected to provide insights into consumer spending patterns and inflation trends, further shaping market sentiment surrounding both the USD and CAD.
Upcoming GDP Figures and Market Reactions
There’s lots of excitement ahead of Friday’s Canadian GDP release. From half-expectations for a miss, to outright predictions of an ugly underperformance relative to last summer’s projections. Canadian GDP has disappointed to the downside for five consecutive months. Compounding this trend is an accelerating chorus of alarm about the underlying state of our nation’s economy. Looking forward, analysts will continue to pay special attention to businesses’ orders for the months ahead. They’re hoping that these measures can counterbalance wider economic weaknesses buried in the GDP data.
The CAD’s outlook could depend on how investors read these coming GDP figures. If the economy continues to slow, it might mean more selling pressure for the Loonie. Conversely, if businesses demonstrate resilience through strong industrial orders, it may mitigate some of the downward pressure currently faced by the CAD.
Sure domestic economic figures matter, but even more important to that equation are international market dynamics. They further greatly affect investor sentiment towards the CAD. Perhaps the bigger worry are the persistent roller-coaster swings in oil prices. They have a direct second-order effect on Canada’s export revenues, and thus on the value of its currency.
Broader Market Context
As the CAD continues to take on pressure against the USD, moves across other currency pairs are similarly adjusting due to recent economic stats. Meanwhile, the EUR/USD exchange rate has experienced a drop below 1.1350 after encouraging US consumer confidence figures on Tuesday. In a related manner, GBP/USD is drawing near to 1.3500 as the USD repeatedly flexes its muscle on the back of upbeat American economic data.
Gold price continue to hold above the $3,300 level. This is a sign of underlying investor hesitance as market sentiment keeps flipping. Traders face an increasingly inhospitable climate during tough economic times. The impact commodities have on currency values further complicates this dynamic.
SIFMA’s market participant members are watching these developments closely. To do this, they keep a watchful eye out for any indication of shifting tides that might affect their plans long-term. Future data releases and geopolitical developments almost certainly will prove important. All of these elements combined are going to influence trading direction for the CAD and throughout the entire marketplace.