The USD/CAD pair refreshes an eight-month high near 1.3850 in Thursday’s New York session. The Loonie asset strengthens as the US Dollar (USD) has bounced back strongly after upbeat United States (US) Q2 Gross Domestic Product (GDP) growth.

Flash US GDP report showed that the US economy grew at a robust pace of 2.8%, which is double the prior release of 1.4%. Economists expected the economy to have grown by 2.0%. This has strengthened the US economic outlook. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, moves higher to 104.40.

The impact of the strong US GDP growth is expected to remain limited as market expectations for the Federal Reserve (Fed) to begin reducing interest rates from the September meeting remain intact. The GDP Price Index, a key measure to gauge changes in prices of goods and services produced, decelerated sharply to 2.3%.

Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for June, which will be published on Friday.

Meanwhile, the near-term outlook of the Canadian Dollar (CAD) is vulnerable as Bank of Canada (BoC) Governor Tiff Macklem has delivered dovish guidance on interest rates. On Wednesday, the BoC cut its key borrowing rates again by 25 basis points (bps), which declined to 4.5%. Market participants had already anticipated a dovish interest rate decision.

Macklem left the door open for further policy easing if inflation eases in line with the bank’s forecasts. He said in the press conference, “We are increasingly confident that the ingredients to bring inflation back to target are in place.” The BoC sees inflation sustainably returning to the 2% target in the second half of 2025. While Macklem communicated dovish guidance on interest rates, he refrained from providing a specific rate-cut path.

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