USD/CAD – U.S retail sales dip but Canadian dollar yawns

The Canadian dollar is unchanged in the Monday session. Currently, USD/CAD is trading at 1.3014, down 0.05% on the day. On the release front, U.S retail sales were much softer than expected. Retail Sales posted a meager gain of 0.1%, shy of the estimate of 0.4%. Core Retail Sales surprised with a decline of 0.1%, compared to an estimate of 0.4%. This marked the first decline since June 2017. Later in the day, the U.S Treasury is expected to release the semi-annual currency report. In Canada, the sole event is the Bank of Canada business outlook survey.

U.S consumer inflation reports missed their estimates, and the Canadian dollar took advantage, posting gains on Thursday. CPI and Core CPI both posted small gains of 0.1%, shy of the estimate of 0.2%. On a year-to-year basis, CPI increased 2.3% in September, down from 2.7% in August. Still, with inflation above the Fed’s 2% inflation target, these readings are unlikely to affect the Fed’s plans to raise interest rates in December, which would mark the fourth rate increase this year. The likelihood of a rate hike remains high, with the CME pegging the odds at 76%.

Investors are keeping a close eye on the U.S Treasury’s currency report, which will be published later in the day. In the last report, the U.S did not name any of its major partners as currency manipulators, but it did criticize China for the “non-market direction” of its economy. Since then, the Trump administration has imposed some $200 billion in tariffs on Chinese goods. China has retaliated with its own tariffs on U.S goods, and there has been speculation that China could respond to the U.S tariffs by devaluating the Chinese yuan, in order to bolster Chinese exports. In 2015 and 2016, the markets dropped sharply on fears that China would implement a major devaluation of its currency. The report should be treated as a market-mover.

With the U.S economy continuing to post strong numbers, the Federal Reserve is on track to raise rates in December. This would be the fourth rate hike in 2018, and the markets are expecting three more hikes in 2019. Not surprisingly, this has put pressure on the Bank of Canada to raise rates as well. The Canadian economy is in good shape, but not nearly as strong as its southern neighbor. The Bank of Canada holds its next policy meeting on October 24, and the strength of key Canadian releases will be a major factor as to whether policymakers raise rates.

Geopolitical risks and yields dominate proceedings

Risk aversion remains at the start of the week

U.S retail sales increase less than expected in September

USD/CAD Fundamentals

Monday (October 15)

• 8:30 US Core Retail  Sales. Estimate 0.4%. Actual 0.1%
• 8:30 US Retail Sales. Estimate 0.7%. Actual -0.1%
• 8:30 US Empire State Manufacturing Index. Estimate 20.4
• 10:00 US Business Inventories. Estimate 0.5%
• 10:30 Bank of Canada Business Outlook Survey
• Tentative – US Treasury Currency Report

Tuesday (October 16)

• 10:00 US JOLTS Openings. Estimate 6.90M

*All release times are DST

*Key events are in bold

USD/CAD for Monday, October 15, 2018

USD/CAD, October 15 at 9:20 DST

Open: 1.3021 High: 1.3033 Low: 1.3001 Close: 1.3016

USD/CAD Technical

USD/CAD was flat in the Asian session and showed limited movement in European trade

• 1.2970 is providing support
• 1.3067 is the next resistance line
• Current range: 1.2970 to 1.3067

Further levels in both directions:

• Below: 1.2970, 1.2831, 1.2733 and 1.2649
• Above: 1.3067, 1.3198 and 1.3292

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