USD/CAD – Canadian Dollar Sags on Dismal Retail Sales and CPI

The Canadian dollar has posted sharp losses on Friday, dropping close to 100 points early in the North American session. Currently, USD/CAD is trading at 1.3140. On the release front, Canadian Core CPI remained at 0.0%, while Core Retail Sales declined 0.1%. Both key indicators missed their estimates. It’s a quiet day in the US, with only one event, Flash Manufacturing PMI.

It was a dismal day for Canadian consumer releases, as retail sales and consumer inflation numbers missed expectations. Core Retail Sales was the biggest disappointment, as the market forecast of +0.5% was dashed by a weak reading of -0.1%.CPI and Retail Sales also posted small declines and missed their estimates. The Canadian dollar has responded with sharp losses in the North American session.

All eyes were on the Federal Reserve on Wednesday, as the central bank set interest rates and released a policy statement. As widely expected, the bank maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.

The Fed statement noted strong growth in job gains and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three rate moves to just two hikes.

USD/CAD Fundamentals

Friday (September 23)

• 8:30 Canadian Core CPI. Estimate 0.2%. Actual 0.0%
• 8:30 Canadian Core Retail Sales. Estimate 0.5%. Actual -0.1%
• 8:30 Canadian CPI. Estimate 0.1%. Actual -0.2%
• 8:30 Canadian Retail Sales. Estimate 0.2%. Actual -0.1%
• 9:45 US Flash Manufacturing PMI. Estimate 52.1

* Key releases are in bold

*All release times are EDT

USD/CAD for Friday, September 23, 2016

USD/CAD September 23 at 9:00 GMT

Open: 1.3049 High: 1.3144 Low: 1.3010 Close: 1.3139

USD/CAD Technical

• USD/CAD posted small gains in the Asian session but has retracted in European trade. Early in the North American session, the pair has posted sharp gains
•  There is resistance at 1.3253
• 1.3120 has switched to support after strong gains by USD/CAD in the North American session

Further levels in both directions:

• Below: 1.3120, 1.3028, 1.2922 and 1.2815
• Above: 1.3253, 1.3371 and 1.3457
• Current range: 1.3120 to 1.3253

OANDA’s Open Positions Ratio

USD/CAD ratio has shown slight gains in long positions. Currently, short positions have a strong majority (64%), indicative of trader bias towards USD/CAD continuing to move downwards.

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