USDCAD Dives Despite Falling Retail Sales in Canada

Following the release of positive US data, sentiment has shifted, leading to a resumption of the uptrend in the USDCAD rate. USD/CAD found support at MAs and rose after the US PMI data showed an increase, breaking the descending trendline. The favorable data has influenced market expectations regarding the Federal Reserve’s interest rate policy, thereby strengthening the US dollar and pushing the USD/CAD above the 1.37 level.

The Canadian Dollar (CAD) is anticipated to have limited upside against the US Dollar (USD), which could support the pair’s downside, as interest rate differentials, a significant FX driver, remain favorable for the USD. Recent Canadian inflation data for April indicated a cooling of price pressures, aligning with analysts’ expectations. This data has brought the potential timing of a rate cut by the Bank of Canada (BoC) closer. Money markets are currently pricing in a 53% probability of a 25 basis point (bps) cut in June, with a fully priced possibility of a rate cut in July.

USD/CAD Chart Daily – The 50 SMA Held As Support

The Federal Reserve is not expected to lower interest rates until at least September, while the Bank of Canada is anticipated to do so in June or July. Given that interest rate differentials, a significant FX driver, continue to favor the USD, the Canadian dollar (CAD) is likely to face limited upside against the US dollar (USD), providing support for the pair’s downside. Recent Canadian inflation data for April indicated a decrease in price pressures, consistent with economists’ forecasts. These data have brought the potential timing of a rate cut by the Bank of Canada (BoC) closer. While a rate cut in July is fully priced in, money markets are currently pricing in a 55% probability of a 25 basis point (bps) cut in June.

Canada April Retail Sales Report

• Retail sales for March -0.2% versus 0.0% expected
• Prior month -0.1%
• Retail sales for March -0.2% vs 0.0% expected. Prior month -0.1%
• Retail sales ex-autos -0.6% versus 0.1% expected. Prior month -0.3% revised to -0.2%. This is the first decline in four months and was broad-based with sales at all but one core retail subsector being down
• The preliminary estimate for retail sales for April came in at +0.7%. That helps to soften the blow from the unexpected decline

Details:

• Sales were down in seven of nine subsectors and were led by decreases at furniture, home furnishings, electronics and appliances retailers.
• In volume terms, retail sales decreased 0.4% in March.
• Retail sales were down 0.2% in the first quarter, while in volume terms, retail sales increased 0.3%

USD/CAD Live Chart

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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