USD/CAD drops more than 100 pips, hits fresh lows below 1.2500

The loonie consolidates gains across the board during the American session and versus the US dollar rose further. USD/CAD is trading at daily lows slightly below 1.2500. 

The pair tumbled today after the release of Canadian GDP data that surpassed expectations. The economy expanded at an annualized rate of 4.5%. “The Bank of Canada lifted its overnight rate to 0.75 percent at its July meeting and has since maintained a tightening bias. Prior to today’s report, we would have said that the next hike could come as soon as the October meeting. While that is still our base case scenario, we would be remiss not to acknowledge there is some risk policy-makers could act at their scheduled meeting this coming Wednesday. CPI inflation at 1.2 percent is still near the low end of the target range, meaning they are not compelled to act now”, said analysts at Wells Fargo. 

Canada: Real GDP rose 1.1% in the second quarter, following a 0.9% gain in the first quarter

Data helped confirm BoC bias and supported the Loonie. The currency also received a boost with the rally in crude oil. The WTI barrel is up 2.6%, holding on top of $47.00. 

Tomorrow in the US the official employment report will be released and in Canada the Manufacturing PMI. 

Levels to watch 

USD/CAD was testing 2-week highs at 1.2660 before the report and since then it has fallen more than 150 pips. Now it is looking at 1.2500 and below that area, attention would turn to 2017 lows near 1.2440. 

The outlook again looks bearish in the short-term. Another rebound at 1.2440 could offer some relief to the US dollar while a break lower could trigger an acceleration. 

To the upside, resistance levels are seen at 1.2550 (Aug 29 high), 1.2600 and 1.2660/65 (daily high).