Elsa Lignos, Senior Currency Strategist at RBC Capital Markets, suggests that the USD/CAD is still trending lower, eyeing a test of support at 1.3280 (200dma). Key Quotes “On Tuesday, USD/CAD took out support at 1.3457 (the Sept 15 high) and 1.3445, the 23.6% retracement of the 2011–2016 rally (0.9407 to 1.4691). CAD benefited from a headline beat in Q4 GDP (+0.8%q/q annualized, cons:0.0%). December m/m GDP was also slightly firmer. But the detail was less encouraging. The main reason for the gain was a smaller than anticipated inventory drawdown. Net trade made a positive contribution but it was down to a collapse in imports (with exports also declining). The odds of a rate cut at next week’s BoC meeting have been almost fully priced out (~4% chance of a 25bps move) and there is just a 1/3 chance of a cut priced by September (there was more than a full cut priced in just a few weeks ago). Our CA economists look for no BoC cuts this year but we also look for more hikes than currently priced for the Fed (one is priced, two seems plausible). With that in mind, the rate dynamic seems to have run its course for USD/CAD, which should limit the downside.” For more information, read our latest forex news.