Loonie Loses Ground Despite Strong GDP Growth
The Canadian dollar slipped despite stronger GDP growth in May, as the US dollar remained firm. The USD/CAD currency pair traded around 1.4045 on Friday, recovering from a two-week low hit on Thursday at 1.3991.
GDP growth was broad-based, with both goods-producing and services-producing industries contributing to the expansion, while 13 of the 20 industrial sectors posted gains.
However, the positive impact of the data on the Canadian dollar proved short-lived as markets continued to price in the risk that the Federal Reserve may need to keep monetary policy restrictive for longer. The US central bank could still deliver a 25-basis-point interest rate hike in September, fueled by rising energy price volatility and ongoing geopolitical tensions in the Middle East.
Fed Chair Kevin Warsh reiterated this week that the central bank remains committed to restoring price stability after leaving interest rates unchanged at 3.5%-3.75%. Three policymakers voted in favor of an immediate rate increase, according to the CME FedWatch tool, which currently assigns around a 65% chance to a 25-basis-point Fed rate hike at the September meeting.