USD/CAD ticks lower after US PCE Inflation, Canadian GDP data release

• USD/CAD is falling slightly after the release of the US PCE inflation data for January and the Canadian Q4 and December GDP data.
• The US core PCE decelerated to 2.6% from 2.8% in December, as expected.
• The Canadian economy surprisingly rose at a higher growth rate of 2.6% on an annualized basis.

The USD/CAD pair is edging lower but holds onto Thursday’s gains around 1.4430 in North American trading hours on Friday. The Loonie pair ticks lower after the release of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for January and the Canadian Gross Domestic Product (GDP) data for the December month and the fourth quarter of 2024.

The US core PCE inflation – which excludes volatile food and energy items – grew at a slower pace of 2.6%, as expected, YoY compared to 2.8% in December. Month over month, the underlying inflation rose by 0.3%, faster than the previous reading of 0.2%.

An expected slowdown in US inflation is expected to provide relief to the Federal Reserve (Fed), which has been endorsing a restrictive interest rate stance. This could also compel them to discuss for how long the borrowing rates should remain in the current range of 4.25%-4.50%.

Meanwhile, the Canadian GDP data has remained mixed. The Canadian economy expanded by 2.6%, compared to the same quarter of 2023, and surprisingly faster than the 2.2% growth seen in the third quarter of the previous year, upwardly revised from 1%. Market participants expected the economy to have expanded at a slower pace of 1.9%.

In December, the Canadian economy grew by 0.2%, the same pace at which it declined in November. Economists expected a higher growth rate of 0.3%.

Broadly, the outlook of the Canadian Dollar (CAD) remains weak as US President Donald Trump has confirmed that he will impose 25% tariffs on Canada and Mexico on March 4 for failing to restrict the flow of fentanyl, made in and supplied by China, into the US economy.