Home ForexForecasts USD/CAD: Canadian Dollar Falls on Retail Sales Disappointment

USD/CAD: Canadian Dollar Falls on Retail Sales Disappointment

by SuperiorInvest

The Canadian dollar extended its losses on Friday. trading at 1.3569 in the North American session, up 0.29%.

Canada retail sales fall in January

Canada's retail sales fell 0.3% month-on-month in January, revised from the previous estimate of -0.4% and well below the 0.9% increase in December. The decline was driven by a sharp decline in motor vehicle and spare parts dealerships (-2.4%).

The silver lining was that six of nine subcategories showed an increase, pointing to some strength in consumer spending. The estimate for February retail sales stands at 0.1%. Year-over-year, retail sales rose 0.9% in January, below the 2.5% forecast and well below December's 2.9% increase.

The retail sales data comes on the heels of February's inflation report, which saw inflation fall to 2.8% year-on-year. It was better than expected and the lowest rate since June 2023.

The core CPI, which excludes energy and food and is considered a better indicator of inflation trends, fell to 2.1% in February, lower than expected and the lowest level since March 2021.

As inflation continues to fall towards the 2% target, pressure is mounting on the Bank of Canada to lower rates and provide some relief to households, who are feeling the pressure of high interest rates and the high cost of living .

The Bank of Canada has held the cash rate at 5.0% for six consecutive times and rates have likely peaked, although the BoC has given no signs that it plans to lower rates.

Markets have priced in a June rate cut of around 70% and other major central banks are moving in the direction of lowering rates. There is a 70% chance the Federal Reserve will cut rates, according to the CME FedWatch tool, and the Swiss National Bank surprised with a rate cut on Thursday, the first major central bank to lower interest rates.

USD/CAD 4-hour chart

USD/CAD Technical

  • USD/CAD tested the resistance at 1.3577 earlier. Above, there is resistance at 1.3611.
  • 1.3518 and 1.3484 provide support

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