USD/CAD remains unchanged above 1.3800 after US/Canada GDP data
- USD/CAD remains steady around 1.3830 after the release of the US/Canada GDP data.
- The US economy contracted by 0.3% in the first quarter of the year due to higher imports, the first decline in three years.
- The Canadian economy declined by 0.2% in February, while it was expected to remain flat.
The USD/CAD pair has not moved much and stays around 1.3830 during the North American trading session on Wednesday after the release of the Gross Domestic Product (GDP) data of both the United States (US) and Canada.
The US Dollar (USD) has faced slight selling pressure after the US Bureau of Economic Analysis (BEA) reported an economic contraction for the first time in three years due to a sharp surge in imports. The US economy declined by 0.3% in the first quarter of the year on an annualized basis. Economists expected a moderate growth of 0.4% in the flash estimates against a robust growth of 2.4% seen in the last quarter of 2024.
Business owners imported a substantial amount of goods to avoid additional tariffs imposed by US President Donald Trump on April 2.
Meanwhile, US ADP Employment Change data for April has also come in weaker-than-expected. The ADP reported that the private sector added 62K, significantly lower than expectations of 108K and the prior reading of 147K.
Weak job growth and negative GDP point to economic turbulence, which is expected to boost market expectations that the Federal Reserve (Fed) could start reducing interest rates from the June policy meeting. For the May meeting, traders are almost confident that the central bank will keep borrowing rates steady in the range of 4.25%-4.50%.
Separately, the Canadian economy has also contracted in February, while economists expected a flat GDP growth. The economy declined by 0.2% after a 0.4% growth in January. The impact of the February GDP data is expected to remain limited on the Canadian Dollar (CAD) as investors seek clues on Canada’s economic performance after the imposition of tariffs on automobiles.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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