Canada’s retail sales rebound

The Canadian dollar is trading quietly at the start of the North American session. USD/CAD is currently trading at 1.2361, down 0.02% on the day.

Retail sales sparkle

Canada ended the week on a positive note, as consumer spending bounced back in August. Headline retail sales were up 2.1% and core retail sales jumped 2.7% (MoM). This follows a weak July, with readings of -0.1% and -0.4%, respectively. The sharp turnaround was supported by several provinces easing health restrictions, which boosted consumer spending. The strong data didn’t affect the Canadian dollar, which had an uneventful week and was almost unchanged on Friday. The currency touched a 4-month high last week, briefly dropping below the 1.23 line.

We could see stronger movement from the Canadian dollar this week, with two key Canadian events on the calendar. The Bank of Canada holds a policy meeting on Wednesday, followed by August GDP on Friday. The BoC is expected to maintain rates at 0.25%, but market participants will be keenly interested in what bank policy makers have to say about the surge in inflation – September CPI hit 4.4% (YoY). Like the Federal Reserve, the BoC continues to insist that inflation, which is running way above the bank’s target of 2%, is transitory. A rate hike is likely a long way off, but the BoC could make some headlines on Wednesday if tapers its QE programme from CAD 2 billion/week to CAD 1 billion/week.

In the US, Fed Chair Powell gave his clearest sign yet that a taper is set for next month. On Friday, Powell stated, “I do think it’s time to taper; I don’t think it’s time to raise rates”. Powell gets full marks for the Fed’s transparency with the markets, and the effective communication could explain why we aren’t seeing a taper tantrum on the parts of the markets. This is in sharp contrast to the market reaction to Fed tapering in 2013, when bond markets were rocked after the Fed talked about winding down its bond purchase programme.

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 USD/CAD Technical

• USD/CAD is putting pressure on support at 1.2300. Below, there is support at 1.2238
• There is resistance at 1.2462, followed by 1.2562

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