(MARCH 31, 2014)

Canada is set to print its GDP reading for the month of January and possibly show a rebound in growth. Analysts are estimating that the Canadian economy grew by 0.4% in the month, a decent rebound from the previous month’s 0.5% decline in GDP.

If that’s the case, USD/CAD might resume its descent this week. Bear in mind that risk sentiment and rising oil prices have been pushing this pair lower, along with dashed hopes that the US economy could see its first rate hike within a year or so. Data from the US economy has disappointed last week, leading traders to believe that Fed Chairperson Yellen’s timeline of interest rate hikes is too optimistic.

 

A quick look at the previous monthly GDP release in February 28 showed that USD/CAD has a strong reaction to the report. At that time, the actual figure showed a much weaker than expected result and triggered a bounce for the pair. That release also marked the completion of the Q4 2013 GDP reading, which was also below expectations. The report could spark a 50-pip reaction for the pair once again.

If the actual figure comes in stronger than expected, USD/CAD could drop from its recent retracement to the 1.1050 minor psychological resistance and test the previous week low around 1.1000. On the other hand, a weaker than expected result might spark another bounce for USD/CAD, possibly until the next key resistance level around 1.1150.

Bear in mind that risk appetite seems relatively stable in today’s Monday trading sessions, as traders are still showing affinity for higher-yielding currencies instead of the safe-haven ones. Do note that Fed Chairperson Janet Yellen also has a speech scheduled in today’s New York trading session and that this might also have a significant impact on USD/CAD price movement.

Prepared by Aayush Jindal, Chief Technical Analyst at Capital Trust Markets

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