CAD lower on sharp US Retail Sales

The Canadian dollar is trading lower for a second consecutive day. Currently, USD/CAD is trading at 1.2730, down 0.33% on the day.

Canada inflation edges higher

The major economies continue to show tentative steps towards recovery, as vaccine rollout programs are slowly turning the tide against the Covid-19 pandemic. With consumers itching to spend money after months of health restrictions, there are pent-up inflationary pressures. The increases we are seeing in US Treasury bonds, particularly the 10-year yields, signals that the markets expect inflation to continue to rise. Canada’s economy has been hit hard by Covid, but nonetheless, headline inflation in January rebounded from a decline of -0.2% and came in at 0.6%, its best showing in seven months. Trimmed CPI, which excludes the most volatile items in the headline read, rose from 1.6% to 1.8%.

US Retail Sales sparkle

In the US, Retail Sales for January was much stronger than anticipated, with a sharp gain of 5.9%. This comes after two straight declines and was the strongest gain since May. The sparkling reading can be attributed to an easing in health restrictions, as well as the latest round in stimulus payments. The Biden stimulus package is winding its way through Congress and should be approved in March. The additional stimulus is expected to trigger a further increase in consumer spending, a key driver of economic activity.

The FOMC minutes will be released later in the day (19:00 GMT). The minutes are expected to reiterate the ultra-accommodative stance of the Fed, and will provide details of the policy meeting from earlier this month. The Federal Reserve has been careful to telegraph its dovish stance to the markets, so the minutes are unlikely to have much impact on the US dollar, barring any surprise comments from the FOMC members in the minutes.

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USD/CAD Technical

• There is resistance at 1.2764. Above, there is resistance at 1.2834
• The pair is putting pressure on the 50-day moving average (MA) at 1.2750. A close above this line is a bullish technical signal
• There is support at 1.2642, followed by support at 1.2590

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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