The USD/CAD pair held steady on Friday, showing little movement after snapping a three-day losing streak, as investors stayed cautious ahead of two major economic releases: the US Personal Consumption Expenditures (PCE) inflation data and Canada’s Gross Domestic Product (GDP), both due at 12:30 GMT.
During the European session, the pair traded around 1.3750, having earlier touched 1.3737—its lowest level since August 8. A mild recovery in the US Dollar (USD) prevented the Canadian Dollar (CAD) from extending its gains.
Meanwhile, the US Dollar Index (DXY), which tracks the greenback against six leading currencies, is attempting to stabilize after three straight days of losses. The index is hovering near the 98.00 level, with traders adjusting positions before the US data release. Still, the dollar remains broadly under pressure amid doubts about Federal Reserve (Fed) independence and expectations that policymakers will adopt a more dovish tone. Markets are currently pricing in a 25 basis point rate cut in September. The July PCE inflation report will be a key driver in shaping the Fed’s next move.
In Canada, GDP figures will offer direction for the Loonie. Economists project a 0.1% expansion in June after May’s 0.1% contraction, while second-quarter growth is forecast to stagnate. On an annualized basis, GDP is expected to contract by 0.6%, a sharp reversal from Q1’s 2.2% growth. The slowdown has largely been blamed on falling exports, hit hard by new tariffs that weakened external demand and investment.
This weaker growth outlook bolsters expectations for further Bank of Canada (BoC) easing. At its July 30 meeting, the BoC left rates unchanged at 2.75% but hinted that another cut could be on the table if economic slack continues to weigh on inflation and tariff-related price pressures stay limited. Markets have already priced in a 25 bps cut by year-end, which restricts significant upside for the Canadian Dollar, even though oil prices and risk sentiment are offering near-term support.
In the US, attention is squarely on the Fed’s preferred inflation gauge—the core PCE Price Index. Analysts expect a 0.3% month-over-month rise in July, in line with June, while the annual rate is forecast to tick up to 2.9% from 2.8%. Headline PCE is projected to hold steady at 2.6% year-on-year.
If the PCE report shows softer numbers, expectations for a September Fed rate cut will strengthen, adding pressure on the dollar. On the other hand, stronger-than-expected results could challenge the dovish outlook and provide USD/CAD with temporary support. Alongside PCE, traders will also track US income and spending data for clues on consumer strength, a key pillar of US economic resilience.
