USDCAD Fundamental Analysis – 4-June-2024

The Canadian dollar has recently strengthened to around $1.36 (USD/CAD), influenced by various economic indicators from both Canada and the US. This shift is primarily due to new data from the US that suggests a more cautious approach from the Federal Reserve (Fed).

US Inflation Growth Slows to 0.2%

The core Personal Consumption Expenditures (PCE) prices in the US, which the Fed closely monitors to gauge inflation, increased by only 0.2%. This is the slowest growth rate this year and hints that inflation might stabilize near the Fed’s target. As a result, the demand for the US dollar has softened, benefiting the Canadian dollar.

Canada’s Economy Grows 0.3% in April

In Canada, preliminary data shows that the economy grew by 0.3% in April compared to the previous month, indicating a solid expansion. However, this optimism is tempered by the final GDP figures for the first quarter, which revealed an annualized growth of just 1.7%, falling short of the expected 2.2%.

This discrepancy has led to increased speculation about the Bank of Canada (BoC) potentially cutting interest rates. 48% of market participants expect a rate cut in June, up from 34% before the GDP data was released.

Summary

This economic landscape suggests a cautious yet optimistic outlook for the Canadian economy, with market participants closely watching future data releases for more clarity.

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