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Canadian Dollar Firms Modestly as GDP Beats, but Still Decelerates

Canadian Dollar Firms Modestly as GDP Beats, but Still Decelerates

2019-11-29 14:15:00
Christopher Vecchio, CFA, Senior Strategist
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Canada GDP Report Review:

  • Two Canadian growth figures this morning beat expectations, even if there was still notable deceleration in growth conditions: September Canada GDP was up by 1.6% and Q3’19 Canada GDP (annualized) was 1.6%.
  • The Bank of Canada has seen interest rate cut expectations pull forward in recent weeks.
  • According to the IG Client Sentiment Index, traders still shorting USD/CAD, yielding a mixed bias in the near-term.

Looking for longer-term forecasts on the Canadian Dollar? Check out the DailyFX Trading Guides.

The Bank of Canada’s October policy meeting caught market participants by surprise with warnings that the US-China trade war was having an increasingly negative impact on global growth. It seems that BOC policymakers ‘knew something,’ as the latest batch of Canadian growth figures showcases a dramatically slower growth environment compared to prior periods.

According to Statistics Canada, the latest batch of growth figures for the world’s 11th largest economy showed that there was a meaningful drop off in Q3’19, and low growth conditions persist. The year-over-year reading, running through September 2019, showed Canadian growth around 1.6%, better than the 1.4% rate anticipated. But the annualized Q3’19 Canada GDP figure plunged from 3.5% to 1.3%, underscoring BOC policymakers’ concerns at their meeting in October.

As it were, following the GDP data, BOC interest rate odds remained unfazed. Prior to the October BOC meeting, there were no interest rate moves discounted through October 2020. However, over the past month, including after today’s data, rates markets have now moved to price-in the next BOC rate cut as soon as April 2020.

Here are the data driving the Canadian Dollar this morning:

- CAD Gross Domestic Product (SEP): 0.1% as expected, unch. (m/m)

- CAD Gross Domestic Product (SEP): 1.6% versus 1.4% expected, from 1.5% (y/y)

- CAD Gross Domestic Product (3Q): 1.3% as expected, from 3.5% (annualized)

See the DailyFX Economic Calendar for Friday, November 29, 2019.

USD/CAD Rate Technical Analysis: 1-minute Chart (November 29, 2019 Intraday) (Chart 1)

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Following the GDP report, the Canadian Dollar was able to scrape together modest gains, although price action was extremely limited – not entirely a surprise, given the low volume, low participation environment that typically marks the day after US Thanksgiving holiday. USD/CAD rates were trading near 1.3304 ahead of the Canada GDP report, fell as low as 1.3294, and were trading at 1.3300 at the time this report was written.

IG Client Sentiment Index: USD/CAD Rate Forecast (NOVEMBER 29, 2019) (Chart 2)

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USD/CAD: Retail trader data shows 30.13% of traders are net-long with the ratio of traders short to long at 2.32 to 1. The number of traders net-long is 3.79% lower than yesterday and 23.30% higher from last week, while the number of traders net-short is 0.17% lower than yesterday and 2.00% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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