USD/CAD extends its upside above 1.3520, US GDP data eyed

The USD/CAD pair extends the rally below the mid-1.3500s during the early Asian trading hours on Thursday. The Bank of Canada (BoC) held its benchmark interest rate steady at 5.0% on Wednesday, marks the fourth consecutive hold from the central bank. The attention will turn to the preliminary US GDP growth numbers for the fourth quarter (Q4), due on Thursday. At press time, USD/CAD is trading at 1.3532, gaining 0.03% on the day.

The BoC maintained the overnight rate steady for the fourth time in a row, continuing the pause that began following the las thike in July last year. The BoC governor Tiff Macklem stated on Wednesday that the focus of central bank has shifted from whether interest rates are high enough to how long until they can begin to be lowered.  According to the Bank of Canada’s Monetary Policy Report (MPR), the central bank expected that inflation will hit its 2% target in 2025.

The US S&P Global Composite PMI for January signalled the fastest rise in business activity since June 2023, coming in at 52.3 versus 50.9 prior, beating the market expectations. Meanwhile, the Services PMI rose to 52.9 in January from 51.4 in December. The manufacturing figure grew to 50.3 from 47.9 in the previous reading. The stronger-than-expected PMIs indicate that the US economy is on pace for a soft-landing.

On Tuesday, Former St. Louis Federal Reserve (Fed) President James Bullard said that Fed may start cutting interest rates potentially as soon as March, even if inflation has not hit 2% target. However, Fed governor Christopher Waller stated that the Fed should cut rates "methodically and carefully" and definitely not in a rushed manner. Atlanta Fed President Raphael Bostic said he sees rate cuts beginning in the third quarter.

Moving on, market participants will monitor the flash US Gross Domestic Product Annualized (Q4), the weekly Initial Jobless Claim and Durable Goods Orders. On Friday, the US Core Personal Consumption Expenditures Price Index (Core PCE), Fed's preferred inflation measure, will be the highlight.