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

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

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

The annual PCE price index fell to 2.2%, slower than estimates of 2.3% and July’s reading of 2.5%. Over the same period, core PCE inflation, which excludes volatile food and energy prices, rose 2.7%, in line with expectations. This would lead to market expectations for the Federal Reserve (Fed) to cut interest rates by another 50 basis points (bps) in November.

Going forward, investors will turn their attention to a slew of U.S. labor market data due next week. Market participants will be paying close attention to them to know the current state of job growth. Last week, the Fed delivered a whopping 50 bps rate cut, pushing interest rates to 4.75%-5.00%, amid growing concerns about weakening job demand.

Next week, investors will also focus on US PMI data, which will provide the current state of economic health.

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