Canadian dollar steadies despite GDP dip

The Canadian dollar was little changed against its US counterpart on Thursday but was on track for a steep quarterly decline, as equity markets globally fell and preliminary domestic data showed the economy contracting in May.

Stocks sank and the safe-haven US dollar surged against a basket of major currencies, as investors worried that the latest show of central bank determination to tame inflation will cause economies to slow rapidly. Canada’s economy likely declined 0.2% in May, following a gain of 0.3% in April which matched estimates.

Money markets expect the Bank of Canada to hike interest rates by three-quarters of a percentage point at its next policy decision on July 13, which would be its biggest hike in 24 years.

The central bank is due to release on Monday quarterly surveys of businesses and households, which include measures of their inflation outlooks. The risk of inflation becoming entrenched in Canada’s economy is growing, analysts say.

The Canadian dollar was nearly unchanged at 1.2890 to the greenback, or 77.58 US cents, after trading in a range of 1.2879 to 1.2933.