By Ketki Saxena
Investing.com -- The Canadian dollar weakened against its U.S. counterpart on Friday - although this was driven more by CAD weakness than DXY strength.
The Canadian dollar was pressured by data that showed the domestic economy grew less than expected in Q2, and likely contracted in June. Data from Statistics Canada shows that the Canadian economy 0.3% in May for a quarter over quarter gain of 1.1%, below Bank of Canada's estimates for 1.5% growth. The data also showed that GDP likely contracted 0.2% in June,
The data implies that the Bank of Canada's spree of interest rates is beginning to make its effect felt in cooling the economy, raising bets that the Canadian central bank has finished its monetary policy tightening this cycle.
The commodity-linked Canadian dollar was also supported by crude prices, which closed in the green, as investors bet that global central banks, including the Fed and the European Central Bank are nearing the end of policy tightening. In addition to expected demand rebound, as cenbanks end tightening, crude prices are also being supported on the supply side as OPEC+ cuts production.
Meanwhile, the dollar index pared back as US inflation showed its slowest rise in two years, lending further impetus to bets that the US Federal Reserve too, is close to the end of its own rate hike cycle.
The Commerce Department reported that the personal consumer expenditures index, excluding volatile food and energy prices, rose by a modest 0.2% month over month in line with economist estimates.
On a technical level for the pair, analysts at Scotiabank (TSX:BNS) note, "Broader USD gains have lifted spot away from the mid-1.31 (bear) consolidation range base tested on Thursday and tilt risks marginally towards more USD strength in the short run. But a clear break through 1.3250 is still needed to drive more USD strength."
Looking ahead for the pair, analysts at FX Street note, "The USD/CAD is moving with a slight bullish bias but remains capped by the 1.3250 area. A break higher could lead to an acceleration, with the next resistance seen at 1.3290. The key support stands at 1.3150; before that level, an interim support emerges at 1.3190."