CAD extends losses, retail sales next

The Canadian dollar is in negative territory for a fourth straight day. In the European session, USD/CAD is trading at 1.3522, up 0.24% on the day.

The US dollar continues to shine, particularly against risk-sensitive currencies such as the Canadian dollar. USD/CAD has jumped 1.9% this week and the Canadian dollar has fallen to lows last seen in July 2020. Risk sentiment has eroded due to the escalation in the Ukraine war. The regions occupied by Russia are holding a referendum to join Russia, and no one has any doubt about the results. Russian President Putin has hinted that he could resort to nuclear weapons to defend “Russian territory” and he has also ordered a partial mobilization, as Ukraine presses on with an impressive counter-offensive. The energy crisis in Europe continues to brew – the Nordstream 1 pipeline has been out of service for several weeks, and Western European countries could face energy shortages, with winter only a few months away.

Markets brace for soft retail sales

Canada releases the July retail sales report later today. The markets are braced for a sharp downturn in consumer spending. The headline reading is expected at -2.0%, following a gain of 1.1% in June. Core retail sales is expected to fall by 1.8%, after a 0.8% gain in June. A sharp downturn could sour investors on Canada’s economic outlook and extend the Canadian dollar’s losses.

Canada’s headline and core inflation indicators fell in August and were lower than expected. It’s still early to declare that inflation has peaked, but the BoC can declare a job well done if inflation is indeed falling. The BoC has been aggressive, delivering a 75bp increase earlier this month and bringing the benchmark to 3.25%. The markets have priced in a 50bp at the October meeting, followed by a modest 25bp hike in December. That would lift rates to an even 4.00%, which would be the highest since 2008, during the GFC.

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USD/CAD Technical

• USD is testing resistance at 1.3529. The next resistance line is 1.3615
• There is support at 1.3414 and 1.3274

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