USD/CAD Rallied on Strong U.S. GDP

The dollar moved higher Loonie breaking out versus most major currencies. Treasury yields were mixed, and the curve flattened to the lowest levels since November 2020, signaling an oncoming recession. GDP was stronger than expected in the U.S., helping lift the 2-year Treasury yield. The Fed’s hawkish tone now has the market considering 5-rate hikes in 2022, and additional rate hikes in 2023.

Technical Analysis

The USD/CAD surged on Thursday breaking out above resistance. Support, which was former resistance is seen near the 50-day moving average on near 1.2708. Resistance is seen near the January highs at 1.2813. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to a higher exchange rate.

Inflation Remains Robust

Quarter-over-quarter, core personal consumption expenditures, which measures price increases, and one of the gauges the Fed uses to evaluate inflation, rose 4.9% versus 4.9% expected, 4.6% in Q3. Q4 Gross Domestic Product increased 6.9% year over year. Expectations were for GDP to rise 5.5%. Compared to a disappointing Q3 rebound in growth, the rise in GDP saw output in the U.S. increase by 2.3% annually. The Commerce Department also reported that personal consumption rose 3.3% compared to 3.4% expected and 2% in Q3.