By Ketki Saxena
Investing.com -- The Canadian dollar weakened to a fresh 12-month low against the greenback today, as Canada’s GDP data indicated a second straight quarterly contraction, and ahead of a monetary policy decision from the US Federal Reserve tomorrow.
August’s came in flat, missing the forecast of 0.1%, with preliminary data also indicating a contraction in September, which would put the Canadian economy into a technical recession, or two consecutive quarters of a contraction.
Doug Porter, chief economist at BMO (TSX:BMO) Capital Markets, wrote in a recent note that Canada’s stagnating growth is one of the reasons for the pressure on the Canadian currency. "One weight on the currency, and/or a lift for the U.S. dollar, has been the extreme separation in relative growth performances in recent quarters”.
Meanwhile, the US GDP continues to beat expectations, amongst other data that has led to increased bets of another 25 bps rate hike from the Fed before year end. Tomorrow, however, the Fed is widely expected to keep rates on hold. The commodity-linked Canadian currency was also pressured by crude prices, as weaker-than-anticipated factory activity in China raised worries of lower demand from the world’s top importer of crude.
On a technical level for the pair, analysts at FX Street note, The pair is vaulting off the 50-day Simple Moving Average (SMA) lifting into 1.3850, with the 200-day SMA building out a price floor from 1.3770.”
“Technical resistance to the topside is looking increasingly thin, with the only notable sticking point sitting at 1.3977, 2022’s annual high set back in October of last year."