USD/CAD – Steady as Inflation Slips, Retail Sales Mixed in US

The Canadian dollar is posted small gains on Wednesday, as the pair trades on the 1.30 line early in the North American session. In the US, PPI posted a decline of 0.5%, missing expectations. Retail sales numbers were mixed, as Retail Sales posted a gain of 0.2%, while Core Retail Sales declined 0.1%. There are no Canadian releases on Wednesday. Traders should keep a close eye on Thursday’s key releases out of the US, highlighted by CPI.

US numbers on Wednesday were a mix, and with no key Canadian releases on the schedule, USD/CAD is keeping steady. Retail Sales was up 0.2%, while Core Retail Sales posted a slight decline of 0.1%. Both readings were within expectations. The news was not good on the inflation front, as PPI, the principal gauge of inflation in the manufacturing sector, declined by 0.5% in September, its weakest showing since February. We’ll get another look at inflation indicators on Thursday, with the release of CPI. The markets are keeping expectations low, with an estimate of -0.2%. The estimate for Core CPI stands at +0.2%, so we could be in for a mixed bag, just as we saw with retail sales numbers on Wednesday.

Federal Reserve policymakers are strongly divided on the question of a rate hike in 2015. This was underscored on Monday by FOMC member Lael Brainard, who stated that the Fed should not raise rates before global economic conditions improve. Brainard noted that the Chinese slowdown has caused economic turmoil worldwide, and the US economy could lose steam due to weaker exports and weak global economic conditions. Clearly, Brainard is of the view that the Fed should take its time and proceed with caution. With global economic conditions unlikely to change anytime soon, a rate move may be on hold unless the US posts some key releases, such as GDP or employment numbers, which match or beat expectations.

A very different view was put forth on Monday by another FOMC member, Dennis Lockhart. Lockhart, considered a centrist on monetary policy, sounded more optimistic about a rate hike before the end of 2015. Lockhart did not rule out a rate hike in October, and added that the Fed would have more data to evaluate before its December policy meeting. With FOMC members sending out such conflicting messages, it is no wonder that the markets have been unable to get a handle on the timing of a rate hike, and this failure of the Fed to communicate a clear message to the Fed has hurt the US dollar, as we saw after the release of the Fed minutes last week.

The strength of the Canadian dollar has 2015 has mirrored the price of oil, one of Canada’s key exports. With oil prices dropping to multi-year lows, the resource-dependent economy has been in a recession for the first two quarters of 2015 and the Canadian dollar has taken a tumble. However, oil prices have rebounded recently and reached their highest levels since mid-August, which has given the Canadian dollar a big boost. There was more good news last week, as Canada posted strong employment gains in August. As well, last week’s BOC Business Outlook Survey indicated that businesses plan to increase their hiring, in anticipation of stronger demand due to a more competitive Canadian dollar and a strong US economy. With no Canadian releases until Friday, much of this week’s movement from USD/CAD will be dependent on key US events.

USD/CAD Fundamentals

Wednesday (Oct. 14)

• 12:30 US Core Retail Sales. Estimate -0.1%.  Actual -0.3%.
• 12:30 US PPI. Estimate -0.2%. Actual -0.5%.
• 12:30 US Retail Sales. Estimate +0.2%. Actual +0.1%.
• 12:30 US Core PPI. Estimate +0.1%. Actual -0.3%.
• 14:00 US Business Inventories. Estimate +0.1%.
• 18:00 US Beige Book.

Upcoming Key Events

Thursday (Oct. 15)

• 12:30 US CPI. Estimate -0.2%.
• 12:30 US Core CPI. Estimate 0.1%.
• 12:30 US Unemployment Claims. Estimate 269K.
• 14:00 US Philly Fed Manufacturing Index. Estimate -1.8 points.

*Key releases are highlighted in bold

*All release times are GMT

USD/CAD for Wednesday, October 14, 2015

USD/CAD October 14 at 14:15 GMT

USD/CAD 1.3000 H: 1.3024 L: 1.2960

USD/CAD Technical

• USD/CAD is showing some movement on Wednesday, but hasn’t been able to make a clear break in either direction.
• 1.2930 is an immediate support level.
• 1.3063 is a weak resistance line.
• Current range: 1.2930 to 1.3063

Further levels in both directions:

• Below: 1.2930, 1.2798, 1.2646 and 1.2552
• Above: 1.3063, 1.3165, 1.3213 and 1.3310

OANDA’s Open Positions Ratio

USD/CAD ratio is showing little movement on Wednesday. The ratio has a majority of long positions (52%), indicative of a lack of trader bias as to expectations about USD/CAD direction.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.