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Canadian Dollar Slips After GDP Falls by Most Since 1991, Australian Dollar to See RBA Rate Decision Overnight

Monday, 01 June 2009 20:49:43 GMT  |  Terri Belkas, Currency Analyst

The Canadian dollar ended the day mostly lower following Statistics Canada's release of Canadian GDP, which showed that the nation's recession deepened during Q1. Indeed, GDP fell an annualized 5.4 percent in Q1, the sharpest drop since 1991, following a 3.7 percent contraction in Q4 2008. That said, the decline was not as severe as expected but highlights the impact of the US recession on Canada, as exports tumbled. Domestic demand has waned as well as evidenced by the plunge in imports and a drop in consumer spending.

The Australian dollar, on the other hand, was quite strong due to solid demand for carry trades. Overnight, AUD/USD could respond to the RBA’s post meeting policy statement, even though they are anticipated to leave their cash rate target unchanged at 3.00 percent. After the central bank’s last meeting, RBA Governor Glenn Stevens said that future rate cuts would be based on “how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity.” As a result, it will be important to look to Stevens’ statement, as signs that the economy or financial markets are not holding up strongly enough for the RBA’s liking may suggest that the central bank will consider cutting the cash rate target again, and this news could weigh on the Australian dollar. On the other hand, indications of a broadly neutral bias and comments suggesting that 3.00 percent is essentially the floor for the cash rate target could support the currency.

Related Articles: Canadian Dollar Weekly Trading Forecast, Australian Dollar Weekly Trading Forecast

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