CAD falls despite solid retail sales

The Canadian dollar is in negative territory for a fifth straight day. Currently, USD/CAD is trading at 1.2902, up 0.57% on the day.

Canada Retail Sales within expectations

June Retail Sales rebounded nicely, with gains of 4.2% for Headline Retail Sales (4.4% exp.) and 4.7% for Core Retail Sales (4.6% exp.). In May, the headline read was -2.1% and core retail sales at -2.0%. The strong gains are attributable to the easing of Covid restrictions.

The US dollar has been on a tear this week, and the Canadian dollar has been in freefall. USD/CAD has jumped 3.1%, its best weekly performance since March. The Canadian dollar has been pummelled by a double whammy of weaker risk appetite and the hawkish FOMC minutes.

Investors have been snapping up the safe-haven US dollar, as risk appetite has eroded due to surging infections rates of the delta variant of Covid. This has led to renewed lockdowns and these measures will crimp economic growth and hamper the global recovery. This has led to investors snapping up the safe-haven US dollar, which has enjoyed broad gains this week. The US dollar has done particularly well against minor currencies such as the Canadian, Australian and New Zealand dollars, gaining more than 3% against each one this week.

The dollar breezed past the FOMC minutes, as the markets judged the Fed minutes to be hawkish, despite the lack of a timeframe for a tapering. With most members on board for a taper on either side of December, it’s clear that a taper is now a question of timing. The minutes stressed that there was no mechanical link between tapering and rate hikes. This message did not faze the markets, as the Fed has said in the past that it does not plan to raise rates before tapering is completed. Despite the Fed’s stance, a taper is likely to fuel speculation about a rate hike, so the outlook for the US dollar remains bright.

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 USD/CAD Technical

• USD/CAD continues to rise and break above resistance lines. The pair faces resistance at 1.3030, followed by 1.3252. Both are monthly resistance levels
• The next support levels are at 1.2747 and 1.2630

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