The Canadian dollar spent much of yesterday trading within thin ranges, despite the most recent GDP release showing economic output in the country is impressing and beating market expectations.

Currency Pair% Change (Month)Difference on £200,000
GBPCAD3.46%CAD $11,090
Canadian GDP growth

Just after lunchtime yesterday GDP (Gross Domestic Product) figures for May showed that the economy grew by 0.2% on a monthly basis after expectations had outlined predictions of 0.1%.

The reason for the subdued reaction to the impressive GDP figures is likely because of markets awaiting the US Fed’s interest rate decision. Although a small cut of 25 basis points was expected and had been for some time, it’s the forward guidance issued afterwards that could determine the Loonies next move as further cuts from the FED could signal a bearish global outlook, which may have a detrimental effect on the Canadian economy. This could result in a weaker Canadian Dollar as the Canadian economy tends to perform well when the global economy is strong.

Earlier in the month the Bank of Canada opted to keep interest rates on hold at 1.75% and highlighted the risks to the Canadian economy that could scupper its strong performance recently such as a breakdown in talks between the US and China.

Oil is one of Canada’s biggest exports, and with markets expecting the rate cut from the Fed in the US which was the first in 10-years, oil prices have been increasing on hopes of increased demand expectations from the worlds biggest oil user which is the US. This has resulted in a stronger Canadian dollar in the lead up to yesterday’s Fed decision, which may have helped CAD/GBP climb on the interbank rate, reaching 0.6261 at its highest stage this week.

 

Quiet end to the week for data releases

Data is light out of Canada for the rest of the week, with perhaps this afternoon’s Manufacturing PMI set for release at 3pm later today the key release. Expectations are for an improvement to 49.5 from the June figure of 49.2, although this improvement is still below the contraction/expansion benchmark of 50. A move above 50 could result in a boost for CAD exchange rates.

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