Canadian dollar eyes Cdn. inflation, US retail sales

• Canadian inflation expected to remain unchanged
• US retail sales projected to ease

The Canadian dollar is trading quietly in the European session. USD/CAD is trading at 1.3635, up 0.18%. We could see stronger movement in the North American session, with the release of Canada’s inflation report and US retail sales.

Canada’s inflation rate rose unexpectedly in August, rising from 3.3% y/y to 4.0%. This marked a second straight acceleration and if inflation rises again in today’s release, it will increase the likelihood of the Bank of Canada delivering another rate hike. The market estimate is that inflation will remain unchanged at 4.0%. The core rate is also expected to stay steady at 3.3% y/y.

The Bank of Canada meets next on October 25th, and today’s inflation release could be the make-or-break factor for the central bank. If inflation rises, that would support a rate hike. Conversely, no change or a drop in inflation would indicate that the rise in inflation over the past two months has been halted, lending weight to the BoC opting to hold rates.

Is the party over for US retail sales? Consumers have kept spending despite high inflation and elevated interest rates, but retail sales is expected to ease in September to 0.3% m/m, compared to 0.6% in August. On an annualized basis, retail sales are expected to drop to 1.5% in September, down sharply from 2.5% in August.

The Israel-Hamas war is causing plenty of anxiety for investors, but the US dollar, a traditional safe-haven asset, has not benefited from the turmoil. There is widespread concern that the Israel-Hamas war could spread to Lebanon and even to Iran. The US is determined to halt any contagion and has dispatched aircraft carriers to the region, while President Biden is on his way to Israel to show support.

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USD/CAD Technical

• USD/CAD tested resistance at 1.3643 earlier. Above, there is resistance at 1.3716
• 1.3585 and 1.3512 are providing support

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