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Canadian Dollar at 3-week Highs ahead of Q1 GDP

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Canadian Dollar at 3-week Highs ahead of Q1 GDP

The Canadian dollar reached a three-week high against its US counterpart Thursday after Canada’s current account deficit narrowed more than expected in the first quarter.

The loonie advanced 0.36 percent to 0.9227 US after touching an intraday high of 0.9235. The Canadian dollar has advanced half a percent against the greenback over the past five days.

The USDCAD cross was down 0.38 percent at 1.0836. The trend line shows initial support is likely found at 1.0831 and resistance at 1.0907.

Canada’s current account balance, which measures the net flow of current transactions into and out of the country, improved in the first quarter, Statistics Canada reported today in Ottawa. The current account deficit fell from -$15.64 billion to -$12.39 billion. Economists forecast the current account deficit to narrow to -$13.10 billion.

Statistics Canada is set to release first quarter GDP Friday. Canada’s economy is forecast to have expanded 0.1 percent in March and 1.8 percent in the first quarter. Combined with the recent rise in consumer inflation, which reached the Bank of Canada’s 2 percent target in April, the GDP report could soften central bank dovishness toward interest rates.

Statistics Canada will also report on industrial product prices and raw material prices Friday.

The BOC, which officially adopted a neutral stance on interest rates last summer, has repeatedly said a rate cut is still on the table should the economy continue to struggle. Canada’s overnight rate has remained unchanged at 1 percent since September 2010.

The BOC will announce no change to the benchmark lending rate when it meets in Ottawa June 4.

The Canadian economy is forecast to grow 2.3 percent in 2014, according to the International Monetary Fund. However, the country still faces several challenges, ranging from a volatile labour market to lingering weakness in the export sector.

In US data, first quarter GDP was revised downward today by the Commerce Department, which cited a bigger than expected drop in private inventories and exports. Residential and nonresidential fixed investment and local government spending also factored into the lower than expected reading.

Q1 GDP growth was revised from +0.1 percent to -1 percent. That was the first time since Q1 2011 the US economy contracted.

The US economy is forecast to accelerate faster in the second half of the year. According to the Federal Reserve, the first quarter slowdown will not impact the growth outlook, but might lead to a slight revision in the annual GDP estimates. The Fed will release its revised projections at the June Federal Open Market Committee policy meetings.

Early signs show the US economy may have expanded 3.5 percent in the second quarter, according to a recent survey conducted by Bloomberg.

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