May’s 0.3% GDP expansion in Canada fails to sustain Loonie gains as Fed rate hike bets lift the USD.
USD/CAD climbed to 1.4045 on Friday, erasing earlier losses after Statistics Canada reported a 0.3% month-over-month GDP increase in May. The gain followed an upwardly revised 0.6% rise in April, with broad-based growth across sectors.
Markets had anticipated modest growth, but the Loonie’s rally faded as the US Dollar regained strength. Investors are pricing in a 65% chance of a 25-basis-point Fed rate hike in September, driven by persistent inflation concerns and geopolitical risks.
The shift in Fed policy expectations overshadowed Canada’s economic data, with traders now focusing on upcoming US consumer sentiment and inflation expectations reports.