US inflation meets forecasts while CAD GDP misses

Summary:

• US PCE core inflation Y/Y: +2.0% vs +2.0% exp

• Canadian GDP misses forecasts. Q2 +2.9% vs +3.1% exp

• USDCAD rises to retest breakout level at 1.2985

This afternoon main economic releases saw a batch of data from North America released simultaneously with the latest US inflation figures meeting forecasts and the most recent Canadian growth figures disappointing. Taken together this has provided for a pop higher in the USDCAD pair, with the cross rising to retest its prior breakout level around 1.2985 from below. Let’s now look more closely at the data, starting of with the US releases.

The US July PCE core inflation rose to 2.0% as was expected, rising from 1.9% previously. This is now inline with the Fed’s inflation target after exhibiting a pretty strong rise from the depths of 2015-16. The PCE figure itself is now comfortably above 2.0% at 2.3% and is also at its highest level since 2012. Given this clear upwards pressure it could be worth keeping a close eye on inflation in the coming months to see whether these gains will be built upon or whether they will level off.  

The PCE YoY figure is now comfortably above the Fed’s 2% inflation target while the more widely followed core is at that level. Source: XTB Macrobond

In addition to the inflation figures there were also several other US data points released at the same time. Personal income missed expectations of a 0.4% rise M/M in coming in at 0.3% while personal spending over the same period came in inline at 0.4%. Initial jobless claims rose to 213k from 210k before, but they were still just below the 214k expected. There’s nothing major to take from these readings overall which could be described as continually solid but not spectacular.

Turning our attention further north and looking to Canada, the 2nd quarter GDP disappointed, coming in at 2.9% in annualised terms compared to a 3.1% consensus forecast. While this is the best quarter since Q2 2017 it is still a disappointment given the bullish forecasts and even though the edge may have been taken off the miss by a revision higher to the Q1 data which now stands at 1.4% vs 1.3%.

Canadian GDP rose strongly in the second quarter thanks to an increase in household spending and net exports. Source: XTB Macrobond

Given the combination of these US and Canadian releases it should come as little surprise that the USDCAD has rallied since, with the market higher by around 60 pips. The pair has bounced strongly from the lower reaches of its falling channel and is now back around its prior breakout level of 1.2985. This region previously acted as support on several occasions and could now be seen to offer potential resistance. It should be noted that this level was breached on a few occasions intra-day but on a closing basis it has been a fairly good line in the sand. In light of this tonight’s close may be deemed important with a close back above 1.2985 possibly seen as negating the break lower. However, unless this happens then the break is valid and a failure to recapture the level would keep the market under pressure.

USDCAD has bounced strongly since the data with the market rising on combination of positive US and negative Canadian figures. Price is now retesting the prior breakout level of 1.2985 from below and this could be seen as an important line in the sand from a D1 closing perspective. Source: xStation