USD/CAD: Trading the Canadian GDP Sep 2014

Canadian GDP is a measurement of the production and growth of the economy and is considered one of the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the Canadian dollar.

Update: Canadian GDP flat in July – USD/CAD rises

Here are all the details, and 5 possible outcomes for USD/CAD.

Published on Tuesday at 12:30 GMT.

Indicator Background

The Canadian GDP is released monthly, unlike most other developed countries which post GDP on a quarterly basis. The key indicator provides an excellent indication of the health and direction of the economy. Traders should pay particular attention to Canadian GDP and treat it as a market-mover.

GDP dipped to 0.3% in July, compared to 0.4% a month earlier. Another slight drop is expected, as the August estimate stands at 0.2%. If the indicator falls short of the forecast, we could see the loonie lose ground.

Sentiments and levels

The US dollar posted broad gains last week, and the Canadian dollar was flattened by the greenback juggernaut. US numbers have looked solid, and the markets are expecting a strong NFP late in the week. With the Fed set to wean the economy off QE in October, there will be more focus on the timing of an interest rate hike, which would be bullish for the US dollar. So, the overall sentiment is bearish on USD/CAD towards this release.

Technical levels, from top to bottom: 1.1494, 1.1369, 1.1278, 1.1122, 1.1054, and 1.0954.

5 Scenarios

1. Within expectations: 0.0.% to 0.4%. In such a scenario, USD/CAD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.5% to 0.8%: An unexpected higher reading can send the pair below one support line.
3. Well above expectations: Above 0.8%: An unexpected surge in the reading would likely push USD/CAD downwards, and a second support level might be broken as a result.
4. Below expectations: -0.4% to -0.1%:  A contraction in economic growth reading could cause the pair to climb and break one level of resistance.
5. Well below expectations: Below -0.5%. A very weak reading would likely hurt the loonie and USD/CAD could break above a second resistance level.

For more on the loonie, see the USD/CAD..

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