Canadian Dollar lurches higher on upbeat quarterly GDP growth
- The Canadian Dollar climbed 0.7% against the Greenback in Friday.
- Upbeat Canadian GDP growth figures sent Loonie traders scrambling for the buy button.
- The CAD is back in sight range of six-month highs.
The Canadian Dollar (CAD) found some room on the top side on Friday, spurred higher by a better-than-expected print in Canadian Gross Domestic Product (GDP) growth figures for the first quarter. Ongoing trade turmoil from the Trump administration has kept the US Dollar (USD) hobbled near multi-year lows, giving the Loonie a chance to gain fresh ground.
The Canadian economy grew by 2.2% through the first quarter, soundly thumping median market forecasts and sending the Loonie back into recent highs against the Greenback. However, not all is sunny on the Canadian economic front: overall consumer spending slowed during Q1, with the slack getting hidden behind a surge in both imports and exports as firms spent most of the first quarter either rushing products out the door, or stockpiling goods and products ahead of the start of the Trump administration’s global tariff rollout.
Daily digest market movers: Canadian Dollar steps higher as GDP beat trims BoC rate cut bets
- Canadian Q1 GDP rose 2.2%, handily vaulting over median market forecasts for a 1.7% print.
- Despite the headline beat, Canadian GDP figures are doing a poor job of papering over growing cracks:
- Canadian GDP from the previous quarter was revised sharply lower to 2.1% from 2.6%, and further revisions should be expected moving forward;
- Actual consumption spending declined in Q1, but remains hidden behind a significant uptick in both exports and imports as businesses stockpiled ahead of US tariffs announced in April.
- Canadian employment figures reveal a widening unemployment gap, particularly among younger Canadians.
- The upswing in Canadian quarterly GDP knocked back bets of another rate cut from the Bank of Canada (BoC).
- Rate markets are now pricing in 80% odds of a rate hold at the BoC’s next rate call.
Canadian Dollar price forecast
Fresh bidding pressure bolstered the Canadian Dollar against the US Dollar on Friday, sending USD/CAD within reach of six-month lows just south of the 1.3700 handle. Price action continues to see daily candles trading toward the low side as an ongoing downtrend keeps bids on a bearish trajectory.
USD/CAD daily chart
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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