- The USD/CAD pair hit a novel eight-month high near 1.3850 as the US dollar rebounds on the back of hopeful US GDP growth in Q2.
- Declining inflationary pressures keep the outlook for interest rate cuts by the Federal Reserve intact.
- The Bank of Canada, as expected, cut interest rates again by 25 basis points.
The USD/CAD pair refreshes an eight-month high near 1.3850 in New York on Thursday. Loonie assets are strengthening as the US dollar (USD) rebounded strongly on the back of an upbeat US (US) Q2 gross domestic product (GDP) escalate.
The U.S. GDP flash report showed the U.S. economy grew at a brisk 2.8%, double the previous report of 1.4%. Economists had expected the economy to grow by 2.0%. That strengthened the U.S. economic outlook. The U.S. Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rose to 104.40.
The impact of powerful US GDP growth is expected to remain confined as market expectations that the Federal Reserve (Fed) will start cutting interest rates after its September meeting remain intact. The GDP price index, a key measure of changes in the prices of manufactured goods and services, fell sharply to 2.3%.
Looking ahead, investors will focus on the US Consumer Expenditures (PCE) Index for June, which will be released on Friday.
Meanwhile, the near-term outlook for the Canadian dollar (CAD) is volatile as Bank of Canada (BoC) Governor Tiff Macklem has provided dovish guidance on interest rates. On Wednesday, the BoC cut its key lending rates again by 25 basis points (bps), which dropped to 4.5%. Market participants had previously predicted a dovish decision on interest rates.
Macklem left the door open to further easing if inflation falls in line with the bank’s forecasts. He told a news conference: “We are increasingly confident that the ingredients are in place to return inflation to target.” The BoC expects inflation to return to its 2% target sustainably in the second half of 2025. While Macklem gave dovish guidance on interest rates, he stopped compact of providing a specific path for rate cuts.
