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Will Strong GDP Figures add onto the BOC’s Scope to Hike Rates?

Will Strong GDP Figures add onto the BOC’s Scope to Hike Rates?

2010-05-28 16:24:00
Michael Wright, Currency Analyst
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Fundamental Outlook

Economic activity in Canada is forecasted to advance for the seventh consecutive month in March as Canadian consumers continue to play an essential role in leading the recovery from last year’s recession. Indeed, the recent retail sales report showed that figures jumped 2.1% in March, marking the highest reading since February 2005. Additionally, Canada’s largest partner, the U.S. is now seeing an improved labor market as Americans witnessed employment jump 290K in April, and looking ahead, economists are forecasting payrolls to advance 500K for the month of May. This bodes well for trade and may mitigate the effects of a slowdown in Europe.

Meanwhile, Canada posted the largest jump in employment on record in May, while the unemployment rate fell to 8.1% from 8.2%. Moreover, the loonies’ annualized inflation rate quickened more than expected in April, adding further pressure onto the central bank to raise rates next week. Nonetheless, a GDP reading in line or exceeding economists’ forecasts may lead to bullish Canadian dollar price action. However, at Tuesday’s rate decision,  policy makers may accompany the rate hike with a dovish statement as growing uncertainties surrounding the possible spillover effects of the European debt crisis continues to weigh on the markets. All in all, Canada’s domestic economy remains in a position of strength.


Technical Outlook

USD/CAD
usdcad05.28

USDCAD: The pair has recently broken above the 200-day SMA which has formed as a line of resistance since May 2009, and now signals for further upside in the pair.  Furthermore, dramatic USD advances led to similarly pronounced moves in FX options market sentiment, leading use to believe that the pair could continue higher through recent trade.


For More Technical Analysis Visit the DailyFX Technical Page


Written by Michael Wright, Daily FX Research
Questions? Comments? Email me at instructor@dailyfx.com

 

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