The Canadian dollar (CAD) saw a modest rise on Friday after Canada released better-than-expected GDP data for the first quarter. The ongoing trade tensions under the Trump administration have kept the U.S. dollar (USD) near multi-year lows, giving the Canadian dollar more room to strengthen in global markets.
Canada’s GDP Growth Beats Market Expectations
Canada’s economy expanded by 2.2% in Q1, significantly outperforming the market consensus of 1.7%. This positive surprise pushed the Canadian dollar to its recent highs against the U.S. dollar. However, the overall economic picture isn’t entirely strong. Real consumer spending declined during the quarter, although it was masked by a sharp increase in imports and exports. Much of this trade activity was driven by businesses either rushing to move goods or stockpiling inventories ahead of expected global tariffs from the Trump administration.
Stronger CAD Amid Mixed Economic Signals
Despite the headline GDP growth, underlying figures reveal some concerning trends:
- GDP growth in the previous quarter was revised downward from 2.6% to 2.1%, with expectations of further revisions.
- Consumer spending weakened, but was offset by trade activity that may not be sustainable.
- Canada’s employment data points to rising unemployment, particularly among younger Canadians.
- The surprising Q1 GDP growth has reduced market bets on another interest rate cut by the Bank of Canada (BoC).
- Interest rate markets now price in an 80% chance that the BoC will keep rates unchanged in its next meeting.
Conclusion
The Canadian dollar strengthened following the release of upbeat Q1 GDP data, reaching recent highs against the U.S. dollar. Although there are concerns around falling consumer spending and rising unemployment, the stronger-than-expected growth figures have eased pressure on the Bank of Canada to cut interest rates further. Combined with a weaker U.S. dollar, these macroeconomic developments have helped boost the Canadian dollar’s position in global markets.
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