CAD – GDP data slightly increases the probability of a Canadian interest rate cut

Statistics Canada released data on Friday showing that gross domestic product (GDP) contracted 1.6% quarter-over-quarter in the second quarter ended June 30, following a downwardly revised 2.0% growth in the first quarter. The annualized growth rate for the first six months of the year was 0.4%, the first quarterly contraction in seven. The larger-than-expected economic contraction increases the likelihood of a September rate cut by the Bank of Canada. The Bank of Canada has held interest rates steady at 2.75% for the past three meetings. Canada's economy contracted 0.1% in June, marking the third consecutive month of GDP contraction and the first three consecutive months of contraction in three years. Following the GDP data, money market bets on a September 17 rate cut rose to 48% from 40% previously. The USD/CAD briefly rose slightly, but has since pared those gains.

Since mid-June, the USD/CAD exchange rate has formed three bottoms at similar levels: 1.3539 on June 16, 1.3556 on July 3, and 1.3575 on July 23. The recent breakout above the June 23 high of 1.3798 and the July 17 high of 1.3774 suggests the start of a new, extended rally. Based on the cumulative decline since February, a 38.2% rebound would reach 1.4020, while a 50% and 61.8% rebound would reach 1.4167 and 1.4315, respectively. Furthermore, the 250-day moving average of 1.3970 and the 1.40 level remain key support levels. The support is expected at the 50-day moving average of 1.3730 and 1.36, with significant support at 1.35 and 1.3418.

Forecast Range:
Resistance: 1.3970 - 1.4000/20 - 1.4167 - 1.4315
Support: 1.3730 - 1.3600 - 1.3500 - 1.3418

Focus:
Friday
Canada's August employment data (8:30 PM)

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