CAD Edges Higher ahead of BoC Survey
The Canadian dollar has started the week with gains and could break below the symbolic 1.25 level during the day. US markets are closed for Martin Luther King Day, so I expect a quiet North American session. Later in the day, Canada releases Manufacturing Sales and the BoC Business Outlook Survey.
Just four weeks ago, the US dollar was sizzling and USD/CAD was pressing close to the 1.30 level. The greenback has faltered since then, and USD/CAD dipped below the 1.25 line last week and seems poised to test this level again. Investors remain in a risk-on mood, which has buoyed the risk-sensitive Canadian dollar. The markets have shrugged off releases which could have dampened risk sentiment, such as weak US nonfarm payrolls and retail sales reports, CPI release of 7% and a more hawkish Federal Reserve. Risk appetite can quickly change directions, but in the meantime the mood is bullish, and that should translate into further gains for the Canadian dollar.
Markets yawn after US retail sales slide
Last week wrapped up with US Retail Sales for December and the numbers were dismal. The headline release came in at -2.3% and Core Retail Sales wasn’t much better, with a decline of -1.9%. The weak numbers supported the argument for delaying tightening, so the US dollar may have escaped a bullet as investor reaction was muted.
Why did the markets shrug off such a poor consumer spending report? One reason could be that due to chronic delivery bottlenecks, consumers opted to do their Christmas shopping in November, so the December numbers should not be construed as indicative of weaker consumer spending. The markets also ignored the UoM Consumer Sentiment index for December, which was weaker than expected. The headline print of 68.8 missed the estimate of 70 and was below the 70.6 recorded in December. Still, with inflation continuing to surge, the Fed will stay in a hawkish mood even with some weak consumer readings.
USD/CAD Technical
- USD/CAD is testing support at 1.2513. Below, there is support at 1.2396
- There is resistance at 1.2762 and 1.2879
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