USD/CAD finds support as Canada GDP data and US personal spending disappoints

USD/CAD finds support as Canada GDP data and US personal spending disappoints
  • The USD/CAD was little changed as traders reacted to Canada GDP data and US personal income and spending data.
  • Canada economy declined by 2.1% in the first quarter while RMPI declined by 13.4% in April.
  • In the United States, personal income rose by 10.5% while spending fell by 13.6% in April.

The USD/CAD pair was little changed as the market digested the latest Canada GDP data and the US personal consumption expenditure data. The pair is trading at 1.3750, which is close to its lowest level since March.

USD/CAD

USD/CAD unchanged
USD/CAD at March lows as Canada economy shrinks

Canada sunk into a recession in Q1

Canada has been battling two crisis at the same time this year. The coronavirus disease has infected more than 88,000 people and killed almost 7,000 people.

At the same time, the price of crude oil has declined by more than 30 per cent this year, denying the country the much-needed foreign currency.

Part of the impacts were seen today when Statistics Canada released the second revision of the first quarter GDP data. The numbers showed that the economy shrank by 2.1per cent in the first quarter. It fell by more than 7.2per cent in March alone and by 8.2% on annualised basis. Analysts polled by Bloomberg were expecting the economy to shrink by 10 percent in Q1.

According to Statistics Canada, the contraction was mostly because of weak consumer spending and widespread shutdowns of non-essential businesses.

Household spending declined by a record 2.3% while government spending declined by 1.0%. Similarly, exports declined by 3.0% while imports fell by 2.8%.

Second quarter to be worse

While the first quarter growth was bad, analysts expect the second quarter to be worse. Analysts expect the economy to shrink by more than 40 per cent this quarter and by 7.1% this year. This will leave the country at the middle of the G-7 economies in terms of economic growth. It will also be the worst contraction since the second world war.

According to estimates, it will beat only Italy, France, and the UK, which are expected to decline by 10.2%, 9%, and 7.8% respectively. Other members like the US, Japan, Germany, and France will decline by 5.7%, 4.7%, and 6.2% respectively. Surprisingly, the country has been at or near the top spot in the past decade.

Other data released today disappointed as well. The raw materials price index declined by 36.7% in April after declining by 22% in March. The index declined by 13.4% on a MoM basis. In the same month, the Industrial Product Price Index (IPPI) dropped by 2.3% from March and by 6.0% on a year on year basis.

In recent days, the USD/CAD pair has been on a downward trend because of a significant rally in crude oil prices.

Crude oil price has been rising
Crude oil price has been rising

USD/CAD reacts to weak US consumer spending data

The USD/CAD also reacted to weak consumer spending data. According to the Bureau of Labour analysis, personal income increased by 10 per cent in April to more than $1.97 trillion partly because of the stimulus package.

In the same month, personal consumption expenditure fell by a record 13.2 per cent in the month. That was worse than the expected decline of 12.6%. The biggest contributors to spending was because of food and beverages. Within services, spending in healthcare and food services were the biggest contributors to the slow down. The statement said:

“The $1,662.1 billion decrease in real PCE in April reflected a $758.3 billion decrease in spending for goods and a $943.3 billion decrease in spending for services.”

These numbers matter because, as I wrote yesterday, consumer spending contributes about 67% to the US GDP.

USD/CAD technical outlook

USD/CAD
USD/CAD technical forecast

The USD/CAD has been on a downward trend, boosted by higher crude oil price. The pair is trading at 1.3750, which is slightly below the 50% Fibonacci retracement level. It is also slightly below the 50-day and 100-day exponential moving averages. Also, the price is slightly below the 100-day and 50-day exponential moving average and below the important level of 1.3856. This means that the downward trend may continue as bears target the 68.1% retracement at 1.3600.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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