The Canadian dollar has extended its rally on Thursday. USD/CAD has declined by 0.76% this week and is back below the symbolic 1.25 line.
US GDP misses forecast
US data was a disappointment, and the major haves jumped on the greenback and sent it broadly lower. Advanced GDP for the second quarter rose 6.5%. This is certainly a sharp gain, but well short of the consensus of 8.5%. The soft reading can be attributed to a fall in inventories, which is unlikely to be much of a concern. Unemployment claims also missed the consensus, as both initial and continuing claims were slightly higher than anticipated.
A September taper? Maybe. Or maybe not
There were some expectations that the FOMC meeting would shake up the markets with some tapering news, but in the end, the hype wasn’t really warranted. However, Fed Chair Jerome Powell did state that the economy would need to recover millions of jobs and inflation would need to be durable before the Fed would consider a taper in September. This gives the Fed a couple of months of inflation and employment data to determine if they can start scaling back asset purchases.
The FOMC meeting was a masterful balancing act by Jerome Powell, considering that there is a wide array of views at the Fed when it comes to the burning issue of a timeline for tapering. Powell will have to continue to navigate through some choppy waters, but the markets appear willing to show some patience, as the Fed has done a good job of communicating with the markets. Tapering is on its way, but the Fed is counselling patience and the markets appear willing to wait.
USD/CAD Technical
- USD/CAD faces a monthly resistance line at 1.2586. Above, there is resistance at 1.2741
- On the downside, the pair is testing support at 1.2459. Below, there is support at 1.2352
