USDCAD Might Be At the Bottom, As Canada GDP Disappoints

USDCAD broke below the 1.35 support this week, but the chart is pointing to a bullish reversal and the Canada GDP is showing a weakening economy. The currency pair dropped over 5 cents this month from top to bottom, falling to the 1.3420s early this week, however, USD buyers returned in the second part of the week and the price ended the week close to 1.35, forming a hammer candlestick, which is a bullish reversing signal. The stochastic indicator is oversold as well, while the 100 SMA might have turned into a support indicator on the weekly chart.

So, the technicals point to a bullish reversal, while fundamentals are also pointing higher. The US data this week didn’t show any particular weakness, while the Q2 GDP report from Canada came below expectations, showing that the economy is stagnating and might head into a recession. This means that the Bank of Canada has one more reason to increase the pace of rate cuts,  which is bullish for USD/CAD .

USD/CAD Chart Weekly – The 100 SMA Held As Support

Canada’s Q2 GDP grew by an annualized 2.1% quarter-on-quarter, surpassing expectations of a 1.6% increase. The previous quarter’s GDP growth was revised slightly up to 1.8% from an initial 1.7%. In June, GDP remained flat at 0.0% month-on-month, missing the 0.1% growth forecast. This followed a downward revision of May’s growth to 0.1% from the previously reported 0.2%.

Breaking down the June figures, the services sector showed modest growth, increasing by 0.1%, consistent with the previous month. However, the goods-producing sector contracted by 0.4%, a sharp reversal from the 0.4% growth seen in the prior month. The manufacturing sector experienced a significant decline, falling by 1.5% compared to a 1.0% increase previously.

Looking ahead, the preliminary estimate for July GDP suggests no growth, maintaining the flat trend seen in June. These mixed results indicate some underlying softness in Canada’s economy, particularly in the manufacturing and goods-producing sectors, which could be areas of concern if the trend continues into the third quarter.

Canada Q2 GDP Report

Real gross domestic product was essentially unchanged in June, following a 0.1% increase in May. Goods-producing industries (-0.4%) saw its largest decrease since December 2023 as declines in manufacturing and construction were partially offset by increases in utilities and agriculture. Services-producing industries (+0.1%) increased for the third consecutive month in June 2024. Overall, 12 of 20 sectors expanded in June.

USD/CAD Live Chart