Canadian dollar dips as retail sales fall

The Canadian dollar is in negative territory on Wednesday after a five-day winning streak in which it gained 1.1%. In the North American session, USD/CAD is trading at 1.3703, up 0.29%.

Canada’s retail sales down in February

Canadian consumers are holding tight on the purse strings as spending has been weak in the first quarter. In February, retail sales contracted by 0.1%, after a 0.3% decline in January and shy of the market estimate of 0.1%. The preliminary reading for March retail sales came in at unchanged. On an annualized basis, retail sales rose 1.2% in February, up from the revised 0.2% gain in January.

The weak retail sales numbers point to an economy that is struggling and adds pressure on the Bank of Canada to cut rates in order to relieve the burden on consumers and businesses. The markets have priced in a quarter-point cut in June cut at 50% while a July cut is fully priced in.

The cautious BOC has held the cash rate at 5% for six straight times and is in no rush to lower rates until it is convinced that inflation has been beaten. The BoC will have additional data to pore over in the weeks ahead of the next meeting in June and the strength of those numbers will be critical in the BoC’s rate decision at the next meeting on June 5.

A rate hike from the Federal Reserve? That sounds almost unthinkable, but the options markets have priced in a 20% probability of a rate hike in the next 12 months. Just a few months ago there was talk of up to six rate cuts this year, but a hot US economy and rising inflation have kept rate cuts in the freezer. If inflation continues to climb, the voices for raising rates are bound to get louder.

USD/CAD Technical

• USD/CAD is testing resistance at 1.3701. Above, there is resistance at 1.3773
• 1.3651 and 1.3579 are providing support

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