USD/CAD flirting with 140, retail sales next

The Canadian dollar is lower on Friday. In the North American session, USD/CAD is trading at 1.3998 at the time of writing, up 0.16% on the day. On the data calendar, Canada releases retail sales and the US publishes the services and manufacturing PMIs.

Canada’s retail sales expected to fall

Canada’s retail sales for September are expected to ease to 0.9% y/y, down from 1.4% in August. Monthly, retail sales are projected to remain unchanged at 0.4%. Consumer spending is expected to improve in the third quarter, in part due to the Bank of Canada’s three quarter-point cuts between June and September.

Despite the BoC’s easing cycle, consumers have remained cautious in the uncertain economic climate and the central bank will have continue to aggressively cut rates in order to boost consumer spending, a critical engine of growth. The BoC chopped rates by a half-point in October and there are calls for another half-point cut at the Dec. 11 meeting.

Still, the most likely scenario is a modest quarter-point cut, as this week’s inflation report showed that October inflation unexpectedly rose to 2%. If the November employment report is weaker than expected, pressure will rise on the Bank of Canada to deliver a half-point cut at the December meeting.

In the US, the manufacturing sector has been struggling and has contracted for four consecutive months. The Manufacturing PMI is expected to improve to 48.8 from 48.4, but a reading below 50 indicates contraction. The services sector is in much better shape and has expanded continuously since January 2023. Business activity has been the linchpin of the US economy, which has cooled down but remains in decent shape.

USD/CAD Technical

• USD/CAD is testing resistance at 1.3994. Above, there is resistance at 1.4013
• There is support at 1.3963 and 1.3944

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