The Canadian economy saw a sharp rebound to begin the new year. CAD barely budged following the stronger data. 1.35 should offer key support but could face a serious test should US data falter in the coming weeks, economists at TD Securities report.

CAD GDP starts 2023 on an even stronger foot than expected

“The Canadian economy roared back to life in January with industry-level GDP exceeding the market consensus with a 0.5% gain. Details were even more upbeat, with broad-based growth and new projections for GDP to rise by 0.3% in February.”

“The CAD barely changed following the stronger GDP report. That may be muddled by quarter-end rebalancing flows. That said, USD/CAD has put in a decent reversal in rather short order from 1.38. So, insofar as this data has altered probabilities for BoC pricing, the pair may have already been priced in.”

“For now, we think 1.35 will be key support for USD/CAD but note that the pair still trades moderately rich. Should US data print on the softer side in the next couple of weeks, that support level could face a serious test.”