USD/CAD flat ahead of Canadian retail sales

• Canada’s retail sales expected to slow
• Former Chair Bernanke says the July hike may be the last increase

The Canadian dollar is trading quietly on Friday. In the European session, USD/CAD is trading at 1.3157, down 0.09%.

It has been a busy week in the currency markets, with the US dollar rebounding and posting strong gains against the major currencies. The notable exception has been the Canadian dollar, which has held its own against the greenback this week. We could see some movement from USD/CAD in the North American session when Canada releases retail sales for May.

Will Canada’s retail sales point to a softer economy?

We’ll get a snapshot of consumer spending later on Friday, as Canada releases the May retail sales report. The markets are bracing for a slowdown in May after an impressive April release. The consensus estimate for retail sales is 0.5% in May, down from 1.1% in April. The core rate is expected to fall to 0.3%, compared to 1.3%. If the estimates prove to be accurate, it would point to the economy cooling down and provide support for the Bank of Canada to take a pause at the next meeting in September.

Is the Fed finally done?

The Federal Reserve meets on July 26^th and investors have priced in a 0.25% hike as a near certainty. September is less clear, but the markets have priced another hike at just 16%, according to the CME FedWatch tool. Are the markets being too dovish?

Fed members have said that inflation isn’t falling fast enough, which could mean that another hike is coming after July. Former Fed Chair Ben Bernanke appeared to side with the market view, saying on Thursday that the July hike could be the final rate increase in the current tightening cycle. Bernanke said that the economy would slow further before the 2% inflation target was reached, but he expected any recession to be mild.

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USD/CAD Technical

• There is resistance at 1.3205 and 1.3318
• 1.3106 and 1.2993 are providing support

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