USD/CAD – Canadian dollar eyes retail sales

• Canada retail sales expected to rise
• BoC releases summary of deliberations

The Canadian dollar is showing limited movement on Thursday. In the North American session, USD/CAD is trading at 1.3474, up 0.09%.

Canada’s retail sales expected to improve

Canada wraps up the week with the retail sales report on Friday. July’s retail sales were weak, with a gain of 0.1% m/m and a decline of 0.6% y/y. August is expected to show improvement, with consensus estimates of 0.4% m/m and 0.5% y/y.

The Bank of Canada held the benchmark rate at 5.0% at the September 6^th meeting. The BOC’s summary of deliberations from that meeting, released on Wednesday, showed that the BoC considered raising rates due to stubbornly high underlying inflation.

In the end, the Governing Council members felt that earlier rate increases were having an effect on economic growth and voted to hold rates. Still, there was a concern that a pause might send the wrong message that the tightening cycle was over and that a cut in rates was coming. The BoC therefore stressed at the meeting that the door remained open to further rate increases and that underlying inflation was not falling fast enough.

Fed pauses but lowers rate cut forecast

The Federal Reserve maintained the benchmark rate at 5.5% at Wednesday’s meeting. The Fed delivered a ‘hawkish hold’, signalling that it planned to keep rates in restrictive territory “higher for longer”. This message sent US stock markets lower and US Treasury yields higher on Wednesday, with the US dollar showing short-lived volatility against most of the majors following the decision.

The dot plot from yesterday’s meeting indicated that the Fed expects to raise rates once more before the end of the year, the same forecast as in the June dot plot. However, the September dot plot projected trimming rates by 50 basis points in 2024, compared to 100 basis points in the June dot plot. This “higher for longer” approach indicates hawkishness on the part of the Fed, which remains focused on bringing inflation back down to the 2% target.

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USD/CAD Technical

• USD/CAD is testing resistance at 1.3468. The next resistance line is 1.3553
• 1.3408 and 1.3323 are the next support lines

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