USD/CAD – Weak CPI, Retail Sales Weigh on Canadian Dollar

The Canadian dollar has steadied on Monday, following sharp losses in the Friday session. Early in North American trade, the pair is trading at 1.3160. On the release front, the sole US event on the schedule is New Home Sales. There are no Canadian economic events, but BoC Governor Stephen Poloz will speak at Western Washington University. On Tuesday, the US releases CB Consumer Confidence, a key consumer indicator.

Canadian consumer indicators disappointed on Friday. Core Retail Sales was the biggest disappointment, as the market forecast of +0.5% was dashed by a weak reading of -0.1%. Core CPI remained stagnant at 0.0% for a third straight month, underscoring persistent low inflation levels. The Canadian dollar responded with sharp losses, sliding 120 points against the greenback. The BoC has stated its concerns about weak inflation, and these soft releases will add pressure on the bank to consider reducing interest rates at its October policy meeting.

The Federal Reserve released its highly-anticipated rate statement on Wednesday. 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 to hold rates, 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 within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent in Wednesday’s Fed announcement will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2016, but so far has yet to raise rates this year.

The Fed sent a hawkish message to the markets in its policy statement, hinting broadly at a December rate hike. 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. As far as future rate moves, the Fed was dovish, scaling back projections for 2017 from three to two hikes and lowering its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

USD/CAD Fundamentals

Monday (September 26)

• 10:00 US New Home Sales. Estimate 598K
• 11:45 US FOMC Member Daniel Tarullo Speaks

Tuesday (September 27)

• 10:00 US CB Consumer Confidence. Estimate 98.6

* Key releases are in bold

*All release times are EDT

USD/CAD for Monday, September 26, 2016

USD/CAD September 26 at 9:15 GMT

Open: 1.3151 High: 1.3200 Low: 1.3148 Close: 1.3155

USD/CAD Technical

• USD/CAD showed limited movement in the Asian session. The pair posted slight gains in European trade but then retracted. Early in the North American session, the pair has ticked lower.
• 1.3120 is a weak support line
•  There is resistance at 1.3253

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 is showing little movement in the Monday session. Currently, short positions have a strong majority (66%), indicative of trader bias towards USD/CAD continuing to move downwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.