The U.S. dollar moved closer to a recent two-year low against its Canadian counterpart on Friday, as tepid U.S. data failed to boost sentiment on the greenback, while higher oil prices and a strong Canadian growth report supported demand for the local currency.
In its advance report, the U.S. Bureau of Economic Analysis said gross domestic product rose 2.6% in the second quarter, in line with estimates and up from a 1.2% growth rate in the three months to March. First quarter GDP was revised from an previously estimated 1.4% increase.
The report also showed that the U.S. employment cost index ticked up 0.5% in the last quarter, disappointing expectations for a 0.6% rise.
The dollar had already weakened the Federal Reserve said on Wednesday that inflation remains below its 2% target even as near-term risks to the economic outlook appear “roughly balanced.” In the past, the Fed judged that weakness in inflation was transitory.
The central bank’s cautious tone on inflation sparked fresh uncertainty over the possibility of a third rate hike this year.
Sentiment on the greenback was also vulnerable after Senate Republicans failed to pass their Obamacare repeal bill in a dramatic vote of 49-51 late Thursday night.
In addition, the Senate approved sweeping sanctions against Russia, forcing President Trump to decide whether to accept a tougher line against Moscow or issue a veto amid investigations into ties between his presidential campaign and Russian officials
In Canada, official data showed that the GDP rose 0.6% in May, surpassing expectations for an increase of only 0.2% and up from a growth rate of 0.2% the previous month.
The commodity-related Canadian dollar also continued to benefit from the ongoing rise in oil prices, hovering near eight-week highs thanks to four consecutive weeks of declines in U.S. crude inventories.