USD/CAD remains lower after stable US PCE inflation and weak Canadian GDP

• USD/CAD is under pressure following the US PCE inflation report and the Canadian GDP report.
• Aside from the soft monthly reading of US core PCE inflation, other items were in line with estimates.
• Canada's first-quarter GDP grew at a slower pace of 1.7% annualized.

The USD/CAD pair remains vulnerable near 1.3630 as the US Bureau of Economic Analysis (BEA) has reported that the April Personal Consumption Expenditure (PCE) Price Index was largely in line with expectations From the market.

The report shows that core PCE inflation, which is the preferred inflation indicator of the Federal Reserve (Fed), grew in parallel with estimates and the previous reading of 2.8%. On a monthly basis, core inflation data rose moderately by 0.2%, from the consensus and previous release of 0.3%. A 0.2% increase in the Federal Reserve's (Fed) preferred inflation gauge is consistent with the pace needed to reduce inflation to the 2% target.

However, it is unlikely to raise expectations that the Fed will begin cutting interest rates as early as the September meeting. The scenario is historically favorable for the US dollar. However, the US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, fell to 104.40. The US Dollar is already uncertain due to the downward revision of the first quarter Gross Domestic Product (GDP) data.

On Thursday, the US BEA reported that the economy expanded at a slower pace of 1.3% from preliminary estimates of 1.6%.

Meanwhile, the Canadian Dollar is performing relatively stronger against the US Dollar, but has weakened against other major currencies due to weak GDP figures in different periods. Statistics Canada reported that the economy grew an annualized 1.7%, missing estimates of 2.2% and the Bank of Canada (BoC) forecast of 2.8%. On a monthly basis, the economy remained stagnant as expected in March.

Weak economic growth shows the demand for more stimulus being met by adopting an expansionary policy stance by the central bank. This would raise hopes that the BoC will begin the policy normalization process from the June meeting.