Skip to content USDCAD Fundamental Analysis – 5-June-2024
The Canadian dollar has recently increased to $1.36 (USD/CAD). This change was primarily influenced by recent US economic data, which suggests that the Federal Reserve (Fed) might adopt a more cautious approach. The key driver behind this is the latest US core Personal Consumption Expenditures (PCE) price index, a primary measure of inflation for the Fed.
The index increased by only 0.2%, marking the year’s slowest growth rate. This slowdown hints that inflation might stabilize near the Fed’s target, reducing the demand for the US dollar.
Market Awaits BoC Decision on Rates
On the home front, Canada’s economic performance has been mixed. Preliminary data indicated that the Canadian GDP grew by 0.3% in April compared to the previous month. Despite this positive monthly growth, the overall economic picture for the first quarter was less impressive.
The GDP expanded at an annualized rate of 1.7%, falling short of the expected 2.2%. This discrepancy has influenced market expectations regarding the Bank of Canada’s (BoC) monetary policy. Before the GDP data release, 34% of market participants anticipated a rate cut in June. Post-release, this expectation has risen to 48%.
Summary
In summary, while the Canadian dollar is gaining strength due to external factors, the domestic economic outlook remains uncertain. This nuanced situation highlights the importance of closely monitoring international and local economic indicators to make informed financial decisions.
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