The USD/CAD pair is seen consolidating below mid-1.4000s during the Asian session on Thursday, though it remains close to an over one-week trough touched the previous day. However, a mixed fundamental backdrop warrants some caution before placing directional bets as the focus shifts to important US macro releases.
Thursday’s US economic docket features the Advance Q2 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The data will be looked for more cues about the US Federal Reserve’s (Fed) policy path, which, in turn, will play a key role in influencing the US Dollar (USD) and provide some meaningful impetus to the USD/CAD pair. Apart from this, oil price dynamics should contribute to producing short-term trading opportunities.
In the meantime, the growing acceptance that the US central bank will hike interest rates by the end of this year amid inflation risks stemming from volatile oil prices supports the USD. Adding to this, escalating US-Iran tensions help the safe-haven buck to recover a part of the previous day’s post-FOMC decline to an over one-week low. This, in turn, is seen acting as a tailwind for the USD/CAD pair and warrants some caution for aggressive bearish traders.
The US central bank refrained from adopting a more hawkish stance at the end of a two-day policy meeting on Wednesday. That said, three members voted for a 25 basis points (bps) rate hike amid concern that inflation remains stubbornly above the Fed’s 2% target. Moreover, the CME Group’s FedWatch Tool indicates that traders have nearly priced in at least one interest rate hike by the end of this year, which favors USD bulls and supports the USD/CAD pair.
Meanwhile, US President Donald Trump said that he will order heavy strikes on Iran in retaliation for its “surprise attack” on US forces on Tuesday. Adding to this, the US-Iran standoff over the Strait of Hormuz and Yemen’s Iran-backed Houthi attacks in the Red Sea fuel concerns about significant disruptions to global energy supplies. This acts as a tailwind for crude oil prices, which could benefit the commodity-linked Loonie and cap the USD/CAD pair.
Economic Indicator
Gross Domestic Product Annualized
The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States in a given period of time. Changes in GDP are the most popular indicator of the nation’s overall economic health. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
