USD/CAD: Loonie Ends Week on High Note; Boosted by GDP, BoC Bet Repositioning

© Reuters.

By Ketki Saxena

Investing.com – The Canadian dollar ended the week on a high note compared to its US counterpart, continuing to rally on robust risk-on sentiment.

The commodity linked Canadian dollar was also supported by a continued uptick in crude prices. Supply concerns remained at the forefront due to reduced output at several oilfields in the Kurdistan region of Iraq. The production reductions follow a halt to the north export pipeline.

The Canadian dollar also received a modest bump from Canadian GDP data, which showed the Canadian economy coming in hotter than expected, growing 0.5% in January following a 0.1% contraction in January.

The Canadian dollar and short-term Government of Canada bond yields rose as traders repositioned bets amid expectations that the Bank of Canada will leave interest rates high for longer.

Analysts at TD (TSX:TD) note, “The CAD barely changed following the stronger GDP report. That may be muddled by quarter-end rebalancing flows. That said, USD/CAD has put in a decent reversal in rather short order from 1.38. So, insofar as this data has altered probabilities for BoC pricing, the pair may have already been priced in.”

The US dollar meanwhile continued to weakened after US Personal Consumer Expenditure data - the US Federal Reserve’s preferred measure of inflation - cooled. The PCE rose 0.3% in February from the prior month versus a 0.6% rise in January, coming in below expectations. That was below expectations.

For the year through February, core PCE prices rose 4.6%, the lowest they have been since the end of 2021.

Investors are now 50/50 on the possibility of a 25 bp hike vs. a pause from the Fed in May.

Looking ahead for the pair, analysts at TD note, “For now, we think 1.35 will be key support for USD/CAD but note that the pair still trades moderately rich. Should US data print on the softer side in the next couple of weeks, that support level could face a serious test.”