The Canadian dollar is down sharply on Tuesday. In the North American session, USD/CAD is trading at 1.3743, down 0.71%.

Canada’s GDP rises 0.2%

Canada’s economy continues to struggle in the first quarter. GDP grew by a modest 0.2% m/m February, down from a revised 0.5% in January and shy of the market estimate of 0.4%. The preliminary estimate for March was 0%, missing the market estimate of 0.1%.

The economy appears stuck in neutral, with no signs of a downturn while at the same time domestic demand has been soft. Retail sales have been flat in the first quarter, as consumers remain tight with the purse strings.

Will the Bank of Canada hit the rate-cut button at the June meeting? The weak GDP data would indicate that the economy is running out of steam but BoC policy makers don’t want to lower rates until they are confident that inflation won’t rebound. Inflation is running at 2.9% and services inflation has been sticky, which means that the BoC’s battle with inflation isn’t over yet. The April inflation report in late May will be an important factor in the June decision.

In the US, the Conference Board consumer confidence took a hit and fell to 97.0 in April, down from a revised 103.1 in March and missing the markets estimate of 104.0. This was the lowest level since July 2022, as consumers expressed concern about the labor market, income and the high cost of living.

The US also the ADP employment report earlier today. This release is not considered a reliable precursor for nonfarm payrolls, but the ADP acceleration in March was repeated by nonfarm payrolls, which had a blowout gain of 303,000. ADP is expected to drop slightly to 179,000, down from 184,000 in March.

USD/CAD Technical

• USD/CAD tested resistance earlier at 1.3737. Above, there is resistance at 1.3805
• There is support at 1.3686 and 1.3618

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