USD/CAD Scaling Towards A Yearly High as Market Expects Canada’s GDP Report

USD/CAD

The markets expect that Canada’s Gross Domestic Product (GDP) report to show a pickup in the growth rate. The USD/CAD trades towards a fresh monthly high (1.3108) after retracing from their down move at the start of the week, although the exchange rate may stage another failed attempt to test the yearly high (1.3224).

Canada’s GDP report might affect or stop the recent advance in USD/CAD as the economy is expected to grow 4.4% in the second quarter of 2022. A positive result can sway the Bank of Canada (BoC) as the “Governing Council continues to judge that interest rates will need to rise further.”

Thus, the Bank of Canada might have to deliver a 100bp rate hike because Canada’s inflation is higher and more persistent than the bank’s expectation.

The USD/CAD extends their advance from the 200-Day SMA (1.2769) as Fed Chairman Jerome Powell strongly warns that “restoring price stability will likely require maintaining a restrictive policy stance for some time.” The speculations around the Fed’s hiking cycle may continue to influence the exchange rate while growing expectations for the coming 75bp rate hike.

In any case, if the GDP report gets weaker than expected, it may generate a bearish reaction in the Canadian Dollar and fuel sentiments for lower rate hikes. A further advance in USD/CAD may fuel the recent flip in retail sentiment like the behavior seen earlier this year.

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