Daily Currency Update

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Contrary to its neighbor, GDP up in Canada

CAD - Canadian Dollar

Real GDP grew 4.5% in May, following unprecedented declines in March and April. Although the gains remained 15% below February’s pre-pandemic level, it signals economic stability.

The data, released by StatCan this morning, was more than a 1 percentage point higher than the forecast and in part helped CAD hit a 24-hour high of 1.345.

The greatest impact on the CAD will be Canada’s largest trading partner. US GDP contracted at an alarming rate, with second quarter down 9.5% from the previous quarter. While there have been signs of a recovery since the April low, the US remains in the grips of the coronavirus. States’ inability to curb its spreads and their refusal to reinstate lockdown measures, there are signs activity and mobility are leveling off. The combination of an eroded US interest yield advantage, a broadly positive risk-on mood and renewed euro demand, could be a catalyst to push CAD along.

Key Movers

The euro and GBP both outperformed through Thursday with the single currency continuing to bask in the aftereffects of the EU recovery Fund agreement and largely positive signs surrounding COVID-19 containment. While hotspots for new infections are emerging across the continent, numbers remain manageable (at this stage) and with the rate of infection well short of that in the US, renewed demand for the euro is expected to continue. Having broken 1.18, the currency is poised to move above 1.1850 and extend toward 1.20 in coming days/weeks.

Sterling broke above 1.30 amid ongoing US selling. While the UK remains embroiled in Brexit negotiations and struggles to respond to the economic effects of the pandemic, its recent upturn can only be attributed to broad based USD weakness. Sterling touched 1.3102, before edging lower this morning.

Expected Ranges

USD/CAD: 1.337 - 1.345 ▲

GBP/CAD: 1.751 - 1.767 ▲

EUR/CAD: 1.582 - 1.597 ▲

CAD/AUD: 1.031 - 1.043 ▲