The Canadian GDP data eased the pressure on the BoC to cut interest rates soon, resulting in a stronger Canadian dollar.

The US dollar has gradually strengthened against the Canadian dollar since late December. However, the USD/CAD rally attempt was hindered by the 1.3600 threshold. The Loonie duo was again repelled by the level in New York session trading on Thursday (February 29).

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Statistics Canada reported that Gross Domestic Product (GDP Annualized) grew at +1.0% in the fourth quarter of 2023. The performance surpassed estimates pegged at +0.8%, signaling a significant recovery from -0.5% in the previous period.

Canadian GDP growth was nil every month in December. However, Statistics Canada expects GDP to return to +0.4% growth in January.

These figures ease the pressure on the Bank of Canada (BoC) to cut interest rates shortly. This is because the Canadian economy is performing better than Japan and the UK, which slipped into recession at the end of last year.

"Today's results, while mixed, would send a signal that there's no urgency to cut rates," said Doug Porter, chief economist at BMO Capital Markets. "It's not as if the economy is sinking... It's just very slowly but surely moving ahead."

Consensus now expects the BoC to keep rates at 5.0% in its policy meeting next week. The BoC will likely reiterate its commitment to hold the rate for some time, as Canada's inflation currently stands at 2.9% - well above the central bank's target of 2%.

Market participants believe Canada will start cutting interest rates after or in the same month as the Federal Reserve's policy change. Market data shows an 80% chance of a BoC rate cut starting in June. In addition, there is a 100% chance of a 25 basis point cut in July.