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What goes up must come down… Or at least that seems to be the case with USD/CAD lately, as rallies haven’t tended to last for very long. After pushing higher earlier this week, USD/CAD dipped back down to 1.20 yesterday, all the way through 1.20 during the Asian session, and below 1.19 shortly after the London open for the first time since the first week of January. In fact, the Canadian dollar was the top performing currency overnight. This is a particularly impressive move in light of the Chrysler bankruptcy that’s expected to be announced today. The auto sector, and particularly the “big three,” is more
important to the Canadian economy than the US economy. While the Canadian government is expected to support Chrysler during this process, going forward there is a question over whether Fiat, which is playing the white knight (and has no production facilities in Canada), will be as committed to keeping Chrysler production in Canada as Chrysler would have been on its own. That’s something to keep an eye on going forward, given the potential hit to the Canadian economy.

Today in Canada we get the GDP report for February. For the last several months, GDP surprises have not had a terribly big effect on USD/CAD, and more importantly, the reaction has tended to go in the "wrong" direction, with
upside surprises in GDP leading to rallies, and downside surprises to sell-offs. Since the -0.1% consensus forecast is consistent with the Bank of Canada’s latest forecast, there should be no policy implications from today’s GDP report, and therefore not a terribly big effect on CAD.