USD/CAD stays sideways below 1.3500 after US inflation, Canadian GDP data

• USD/CAD remains below 1.3500 after the release of the US PCE inflation and the Canadian GDP data.
• The US PCE inflation decelerated at a faster-than-expected pace to 2.2% in August.
• The Canadian economy expanded at a better-than-expected pace of 0.2% in July.

The USD/CAD continues to range below the psychological resistance of 1.3500, in Friday’s New York session, despite the release of the United States (US) Personal Consumption Expenditure inflation (PCE) report for August, suggesting that inflation is on track to return to bank’s target of 2%.

The annual PCE Price Index came in lower at 2.2%, slower than estimates of 2.3% and the July’s reading of 2.5%. In the same period, the core PCE inflation, which excludes volatile food and energy prices, rose by 2.7%, as expected. This would prompt market expectations for the Federal Reserve (Fed) to deliver another 50 basis points (bps) interest rate cut in November.

Going forward, investors will shift focus to a slew of US labor market data, which will be published next week. Market participants will keenly focus on them to know the current status of job growth. Last week, the Fed delivered an outsized interest rate cut of 50 bps, pushing interest rates down to 4.75%-5.00% amid growing concerns over weakening labor demand.

Next week, investors will also focus on the US ISM Manufacturing and Services Purchasing Managers’ Index (PMI) data for September, which will provide the current status of the economic health.

Meanwhile, the monthly Canadian Gross Domestic Product (GDP) growth for July has come in higher at 0.2% than expectations of 0.1% and a flat performance in June. Better-than-expected Canadian GDP data is unlikely to provide a reason to Bank of Canada (BoC) policymakers to pause the policy-easing cycle, which started in June. The BoC has already cut interest rates by 75 bps to 4.25%.