Canadian dollar flat ahead of retail sales

The Canadian dollar is showing limited movement for a third straight day. In the European session, USD/CAD is trading at 1.3698, down 0.02% on the day. We could see some movement from the Canadian dollar in the North American session after the release of Canadian retail sales.

Canada's retail sales expected to have expanded 0.5%

Despite an uncertain economic landscape and US tariffs, the Canadian consumer is still spending. The market estimate for April retail sales stands at 0.5% m/m, following a strong 0.8% gain in March.

The driver of the growth in retail sales was a strong increase in motor vehicle sales, as consumers hurried to purchase motor vehicles before US tariffs took effect in April. That could mean a weak retail sales estimate for May.

The Bank of Canada is concerned that the uncertainty over tariffs will chill economic growth and boost inflation. The BoC held interest rates on June 4 at 2.75%, pointing to high core inflation and solid economic activity. GDP gained a respectable 2.2% in the first quarter but the Bank has warned that it expects a weaker GDP in Q2.

Next up: Inflation and GDP

Canada releases inflation and GDP numbers next week and the data will be key in the BoC's rate decision in July. High inflation and a strong GDP report would ease the pressure on the central bank to lower interest rates. The current cash rate of 2.75% is well below the Fed's rate of 4.25%-4.50% and another rate cut from the BoC will put pressure on the Canadian dollar. It's been a great run for the Canadian currency, which has jumped 4.8% against the US dollar since April 1.

• USD/CAD is testing support at 1.3709. Below, there is support at 1.3699
• There is resistance at 1.3720 and 1.3730