USD/CAD nudges up, nearing 1.3950 with US PCE, Canada's GDP on tap

The US Dollar extends its gain, nearing 1.3950, buoyed by strong US macroeconomic data.
A solid US GDP growth and lower jobless claims have curbed hopes of immediate Fed easing.
US PCE Prices Index figures and Canada’s monthly GDP will set the pair’s near-term direction later today.

The US dollar continues to take bids against its Canadian Counterpart on Friday. The pair is hovering at levels right below 1.3950 in the early European session, on trach to its strongest weekly performance since February.

The Greenback drew additional support on Thursday from better-than-expected US macroeconomic data, namely the Q2 Gross Domestic Product and weekly Jobless Claims, which prompted investors to cut back hopes for immediate rate cuts.

Strong US data curbs hopes of an October rate cut

Data from the US Commerce Department revealed that the US economy accelerated to a 3.8% annualized growth rate in the second quarter, following a 0.5% contraction in the first quarter, and well above the 3.3% growth rate previously estimated.

These figures were accompanied by an unexpected decline in Initial Jobless Claims that fell to 218K, from 232K in the previous week, against expectations of an increase to 235K.

Furthermore, orders for expensive goods manufactured in the US jumped 2.9% in August, against the market consensus of a 0.5% decline and following two consecutive months of contractions. These figures improve the outlook for US manufacturing activity.

All these figures have endorsed the view of Fed speakers calling for a cautious approach to monetary easing and prompted investors to scale down bets on an October rate cut. The focus today will be on the US PCE Price Index for further insight into this matter.

The Canadian Dollar, on the other hand, remains on the defensive as a raft of weak macroeconomic figures has boosted hopes of further easing by the BoC. In this context, July’s GDP data, due later today, is expected to show a moderate rebound in economic growth that might provide some support to the Loonie.

Economic Indicator

Personal Consumption Expenditures – Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Economic Indicator

Gross Domestic Product (MoM)

The Gross Domestic Product (GDP), released by Statistics Canada on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in Canada during a given period. The GDP is considered as the main measure of Canadian economic activity. The MoM reading compares economic activity in the reference month to the previous month. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.