• USD/CAD trades around 1.4045 on Friday, up 0.23% on the day after recovering from its two-week lows.
• Canada's economy expanded by 0.3% in May, matching expectations for a second consecutive month of growth.
• The US Dollar finds support from persistent Federal Reserve tightening expectations despite stronger Canadian data.

USD/CAD trades around 1.4045 on Friday at the time of writing, recovering from a two-week low hit on Thursday at 1.3991.

Statistics Canada reported that the economy expanded by 0.3% MoM in May, following an upwardly revised 0.6% increase in April. Growth was broad-based, with both goods-producing and services-producing industries contributing to the expansion, while 13 of the 20 industrial sectors posted gains.

However, the positive impact of the data on the Loonie proved short-lived. The US Dollar (USD) regained momentum as markets continued to price in the risk that the Federal Reserve (Fed) may need to keep monetary policy restrictive for longer. Rising energy price volatility and ongoing geopolitical tensions in the Middle East continue to fuel inflation concerns, supporting expectations that the US central bank could still deliver a 25-basis-point interest rate hike in September.

Fed Chair Kevin Warsh reiterated this week that the central bank remains committed to restoring price stability after leaving interest rates unchanged at 3.5%-3.75%, while three policymakers voted in favor of an immediate rate increase. According to the CME FedWatch tool, markets currently assign around a 65% chance to a 25-basis-point Fed rate hike at the September meeting.

Investors now turn their attention to the final University of Michigan Consumer Sentiment survey, Consumer Expectations and one-year and five-year Consumer Inflation Expectations, due later in the day, for additional clues on the outlook for US monetary policy.