US GDP rise boosts taper chances, pressures Loonie

A better-than-expected performance by the US economy in the third quarter has helped the US dollar but hindered its Canadian counterpart today.

Today’s first glimpse of third-quarter gross domestic product data showed the US economy expanding at a faster rate than had been anticipated and the resulting adjustment in Fed taper expectations has constrained risk appetite, lowering demand for the Canadian dollar.

A report released earlier showed that US GDP grew at an annualised rate of 2.8% in the third quarter, exceeding the 2.0% consensus estimate of economists polled by Reuters. Along with US jobless claims falling 9000 last week, the data tends to strengthen arguments that the Fed might possibly taper by the end of the year.

The Fed’s stimulus has helped to prop up risk demand, and an increase in the chances of a reduction in stimulus therefore pressures currencies and commodities that are correlated to risk demand, such as the Canadian dollar. By mid-afternoon in New York, USD/CAD had risen 0.3% to 1.0448.

Tomorrow we have employment reports for both the US and Canada that are likely to influence USD/CAD. Non-farm payrolls are scheduled for 1.30pm GMT tomorrow, with 125,000 jobs expected to have been added in the US in October. The Canadian labour force survey for October will be released at the same time, with 13,000 jobs forecast to have been created last month.

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