CAD shrugs off soft retail sales

The Canadian dollar has posted gains on Friday. Currently, USD/CAD is trading at 1.2595, up 0.30%.

Canada’s retail sales slip

It was a very light data calendar week, with only one Canadian release until today. Nevertheless, the Canadian dollar showed substantial volatility earlier in the week. On Friday, the focus has been on retail sales reports for May. The news was not great, as retail sales (MoM) posted a second straight decline. Headline retail sales declined by -2.1%, above the consensus of -3.0%. Core retail sales was down by -2.0%, slightly ahead of the -2.2% forecast. Still, the market reaction has been muted, as the readings were better than expected. Also, the May numbers were much better than the previous month (-5.7% for the headline reading and -7.2% for core retail sales).

What is the outlook for the Canadian dollar? Credit Agricole is of the opinion that the Canadian dollar remains undervalued. In a research note, Credit Agricole noted the discrepancy between hawkish expectations for a rate hike and the low value of the Canadian dollar represents a buying opportunity.

Earlier this year, the BoC was the first major central bank to taper its stimulus programme, and it’s a good bet that policymakers will look to further tighten policy if inflation and employment numbers rise and point to the recovery gaining more traction.

In the US, Flash PMIs reports for July were mixed. Manufacturing PMI accelerated to 63.1, up from 63.1 (62.0 est.), while Services PMI fell to 59.8, down sharply from 64.6 (64.6 est). I would not expect investors to wring hands over the slowdown in services, since the reading is comfortably above the 50-level, which separates expansion from contraction.

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       USD/CAD Technical

• USD/CAD faces resistance at 1.2683. Above, there is resistance at 1.2748
• On the downside, there is support at 1.2490. Below, there is support at 1.2362

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