US Q3 GDP Overview

Thursday's economic docket highlights the release of the Advance third-quarter US GDP report, or the first estimate, scheduled at 12:30 GMT. Growth in the world's largest economy is expected to have decelerated sharply to a 2.7% annualized pace during the July-September period from 6.7% recorded in the second quarter.

Joseph Trevisani, Senior Analyst at FXStreet, offered his take on the upcoming release and explained:
“Economic growth in the US appears to have slowed dramatically in the third quarter as labor and supply constraints and lingering pandemic problems hampered operations at firms nationwide. The novelty of more than 10 million unfilled jobs and more than 5 million unemployed, unprecedented government spending, Covid and vaccine fears and a quickly evolving economy have left analysts uncertain about how much damage may have been inflicted on gross domestic product (GDP).”

How Could it Affect USD/CAD?

A softer reading will add to signs of a slowing economic recovery and undermine speculations for an imminent (hawkish) shift in the Fed's policy stance, which should prompt some US dollar selling. That said, growing acceptance that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation should continue to act as a tailwind for the greenback. A stronger report will reinforce expectations for an early policy tightening by the Fed, suggesting that the path of least resistance for the buck remains to the upside.

Meanwhile, a more hawkish turn by the Bank of Canada on Wednesday raised expectations for an interest rate hike as soon as April 2022. The markets, however, now seems to have fully priced in the next BoC policy move. Apart from this, a corrective slide in crude oil prices should keep the commodity-linked loonie under pressure and supports prospects for some meaningful appreciating move for the USD/CAD pair.

Looking at the technical picture, the pair was last seen hovering just below a resistance marked by the lower boundary of a downward sloping channel. A sustained move beyond the mentioned barrier, currently, around the 1.2405-10 region, could trigger a short-covering move and push the USD/CAD pair towards the key 1.2500 psychological mark, or the very important 200-day SMA.

On the flip side, immediate support is pegged near the 1.2340 horizontal zone, below which the pair could drop back towards the post-BoC swing lows, around the 1.2300 mark. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose trend-channel support, currently around the 1.2225-20 region.

Key Notes

   •  US Third Quarter GDP Preview: A most uncertain estimate

   •  US GDP Preview: Forecasts from eight major banks, losing momentum in Q3

   •  USD/CAD Price Analysis: Descending channel hurdle might cap gains ahead of US GDP

About US GDP

The Gross Domestic Product Annualized released by the US Bureau of Economic Analysis shows the monetary value of all the goods, services and structures produced within a country in a given period of time. GDP Annualized is a gross measure of market activity because it indicates the pace at which a country's economy is growing or decreasing. Generally speaking, a high reading or a better than expected number is seen as positive for equities, while a low reading is negative.