The US Dollar/Canadian Dollar exchange rate dropped from 1.3248 to 1.3225, a gain of 0.01%. Gains in GDP are suitable for the dollar. As we enter the European trading session, the US Dollar Index (DXY), which tracks the Greenback against a basket of currencies used by US trading partners, is over 101.70. The North American session’s economic data will be closely watched by market participants looking for fresh impetus.

The demand for the US dollar has surged since Thursday’s upbeat economic report. Real GDP increased by 2.4% annually, according to the preliminary estimate released by the US Bureau of Economic Analysis (BEA), beating market expectations of 1.8% and building on the 2% growth seen in the first quarter. Orders for long-lasting goods increased by 4.7% month-over-month to $302.5 billion. The number of people filing for unemployment benefits dropped to its lowest level in five months the week ending July 22 (-221,000). The figures bolstered expectations for a recession-free year. This might strengthen the US dollar and dampen the gains of the commodity-linked Canadian dollar.

Fed Chair Jerome Powell hinted at a rate hike of 25 basis points in September or November after the July policy meeting. Because the Fed is more hawkish than the BoC, the USD/CAD currency pair benefits.

The Bank of Canada increased interest rates by 25 basis points on July 12 to a 22-year high of 5.0 per cent. Tiff Macklem, the central bank’s governor, has pledged that the institution will make decisions based on data and inflation. On September 6, there will be the next policy meeting.

There was widespread consensus in the market that the Bank of Canada (BoC) would not hike interest rates in 2018. On Monday, the Fed polled market participants and found that the median response was that rates would remain at their 22-year high of 5.00% until 2023 before beginning a gradual decline in March.

The rise in oil prices has helped the Loonie and cushioned Canada’s manufacturing slump. The Canadian dollar appreciates when oil prices rise since Canada is the largest US exporter.

Later in the day, investors will closely watch Canada’s gross domestic product data. The range is 0.3%. US Core Personal Consumption Expenditure (PCE) is the Fed’s preferred inflation index and will be released during the North American session. There will be a yearly drop in inflation from 4.6% to 4.2%. Before next week’s employment data, the numbers will indicate how the pair will move.

Trade Idea:

Consider Buying USD/CAD on Positive Economic Data Expectations and Potential Fed Rate Hike in September or November. Target 1.3300 with a stop loss at 1.3190. Monitor upcoming economic data releases for new momentum.