Usdcad drops as Canada’s inflation declines and US retail data sends mixed signals

USDCAD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	-0.72%	-101 Pips
Week to-date	-0.03%	-4 Pips
April	-3.65%	-524.7 Pips

Upcoming key events (London Time)

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What happened lately

In Canada, the Bank of Canada maintained its policy interest rate at 2.75%, indicating a decision to hold monetary policy steady amid declining inflation figures. The Core Inflation CPI over a 12-month period saw a decrease from 2.7% in February to 2.2% in March, suggesting that core prices are experiencing less upward pressure. In line with this, the monthly CPI inflation rate also declined in March, falling to 0.3% from 1.1% in February. Additionally, the BoC CPI Core Inflation Rate for one month contracted from 0.7% to 0.1%, further demonstrating efforts by the Canadian central bank to rein in inflation. Overall, Canada’s CPI inflation rate dropped from 2.6% in February to 2.3% in March, displaying a downward trend in price levels.

In the United States, mixed signals have emerged from the retail sector, reflecting both resilience and potential cooling of consumer spending. Monthly Retail Trade excluding Automobile decreased marginally to 0.5% in March from a revised figure of 0.7% in February. Conversely, total U.S. Monthly Retail Trade posted a significant increase to 1.4% in March from just 0.2% the previous month, indicating stronger consumer activity overall. However, the Retail Trade Control Group showed a contraction, dropping to 0.4% in March from a revised 1.3% in February, which may hint at potential weakness in the retail sub-sectors. Meanwhile, the New York Empire State Manufacturing Index significantly improved, rising from -20 points in March to -8.1 points in April, pointing to lessened contraction within the manufacturing sector.

The USDCAD exchange rate experienced a decline of 0.72% to 1.38580. The Canadian dollar likely strengthened due to the positive perceptions surrounding Canada’s inflation management, as demonstrated by the falling inflation figures, which may appeal to investors seeking stability. Meanwhile, the U.S. retail and manufacturing figures present a mix of data, where robust overall retail trade might mitigate concerns of a slowing economy. However, continued contraction in the control group and the manufacturing index, although improved, may not exert enough force to strengthen the US dollar emissions relative to the Canadian dollar. With no scheduled major economic events, market participants could focus on these prevailing economic trends in influencing the currency pair’s direction in the short term.

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What can we expect from USDCAD today?

USDCAD on Wednesday dropped -0.72% to 1.38580. Price is below 9-Day EMA while Stochastic is rising in oversold zone.

Updated daily direction for USDCAD looks mixed as the pair is likely to consolidate above 1.3817 (S1).

Looking ahead today, to see upside interest, we prefer to look at price breakout of last daily high of 1.39650 or trades above daily pivot 1.3891. Break above could target R1 at 1.3932. While to the downside, we are looking at 1.3817 (S1) and daily low of 1.38500 as support levels. USDCAD need to break on either side to indicate a short-term bias. A close below 1.38500 would indicate selling pressure.

For the week to-date, take note that USDCAD is mixed as compared to the prior week.

Key levels to watch out:

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