USD/CAD holds steady as US PPI beats forecasts, Canadian GDP contracts

• USD/CAD trades around 1.3680 on Friday, virtually unchanged on the day.
• US Producer Price Index inflation slowed to 2.9% YoY in January but beat market expectations.
• Canada’s Gross Domestic Product contracted by 0.6% in the fourth quarter, versus forecasts for no growth.

USD/CAD trades around 1.3680 on Friday at the time of writing, virtually unchanged on the day, as investors digest a fresh batch of macroeconomic data from the United States (US) and Canada.

In the US, producer price inflation sended mixed signals. The Producer Price Index (PPI) eased to 2.9% YoY in January, down from 3% in December, according to data released by the Bureau of Labor Statistics (BLS). However, the reading came in above market expectations of 2.6%, highlighting more persistent underlying price pressures than anticipated. On a monthly basis, the index rose by 0.5% after a revised 0.4% increase in December, while the index excluding food and energy climbed 3.6% YoY, also exceeding forecasts.

Despite the firmer-than-expected figures, the US Dollar Index (DXY), which measures the performance of the US Dollar against a basket of six major currencies, remains capped below the 98.00 mark and shows no significant reaction. This relative stability limits moves in USD/CAD, as traders appear to be waiting for clearer signals regarding the monetary policy path of the Federal Reserve (Fed).

In Canada, the picture is more negative. Gross Domestic Product (GDP) contracted at an annualized rate of 0.6% in the fourth quarter, following a revised 2.4% growth in the previous quarter, according to Statistics Canada. The consensus forecast had pointed to flat growth. On a quarterly basis, the economy declined by 0.2%, reversing the 0.6% expansion recorded in the third quarter. The statistical agency notes that annual growth was weighed down mainly by lower exports, particularly to the United States.