- The USD/CAD remains stable around 1,3830 after the publication of US GDP data.
- The US economy contracted 0.3% in the first quarter of the year due to an increase in imports, the first drop in three years.
- The Canadian economy decreased 0.2% in February, while it was expected to remain flat.
The USD/CAD torque has not moved much and remains around 1,3830 during the North American negotiation session on Wednesday after the publication of the data of the Gross Domestic Product (GDP) both from the United States (USA) and Canada.
The US dollar (USD) has faced a slight sales pressure after the US Economic Analysis Office (BEA) reported an economic contraction for the first time in three years due to a strong increase in imports. The US economy contracted 0.3% in the first quarter of the year in annualized terms. Economists expected moderate growth of 0.4% in preliminary estimates against a robust growth of 2.4% observed in the last quarter of 2024.
Business owners imported a substantial amount of goods to avoid additional tariffs imposed by US President Donald Trump on April 2.
Meanwhile, US employment change data for April have also been weaker than expected. The ADP reported that the private sector added 62K, significantly below the 108K expectations and the previous 147K reading.
The weak growth of employment and negative GDP points to an economic turbulence, which is expected to drive the market expectations that the Federal Reserve (FED) could begin to reduce interest rates from the June policy meeting. For the May meeting, the operators are almost sure that the Central Bank will maintain the interest rates of stable loans in the range of 4.25%-4.50%.
Separately, the Canadian economy has also contracted in February, while economists expected flat GDP growth. The economy decreased 0.2% after a 0.4% growth in January. The impact of the February GDP data is expected to be limited on the Canadian dollar (CAD) while investors seek clues about Canada’s economic performance after the imposition of cars tariffs.
GDP FAQS
The gross domestic product (GDP) of a country measures the growth rate of its economy for a certain period of time, normally a quarter. The most reliable figures are those that compare GDP with the previous quarter (for example, the second quarter of 2023 with the first of 2023) or with the same period of the previous year (for example, the second quarter of 2023 with the second of 2022).
The annualized quarterly figures of GDP extrapolate the growth rate of the quarter as if it were constant for the rest of the year. However, they can be misleading if temporary disturbances affect growth in a quarter but it is unlikely that they last all year, as happened in the first quarter of 2020 with the burst of the coronavirus pandemic, when the growth collapsed.
A higher GDP result is usually positive for the currency of a nation, since it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting greater foreign investment. Similarly, when GDP falls it is usually negative for the currency.
When an economy grows, people tend to spend more, which causes inflation. The Central Bank of the country then has to raise interest rates to combat inflation, with the side effect of attracting more world investor capital tickets, which helps the appreciation of the local currency.
When an economy grows and GDP increases, people tend to spend more, which causes inflation. Then, the country’s central bank has to raise interest rates to combat inflation. Higher interest rates are negative for gold because they increase the opportunity cost to keep gold in the face of placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of gold.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
