Canadian Dollar eyes Retail Sales

The Canadian dollar is unchanged on Friday. USD/CAD is trading at 1.3726 in the European session at the time of writing at the time. Canada releases retail sales later, which may trigger some volatility in the North American session. The US will release durable goods and consumer confidence data.

Canada’s retail sales expected to remain flat

Canadian consumers have tightened their belts, as retail sales have been flat so far in 2024. More of the same is expected in the March release, with a market estimate of 0%. Today’s report will be carefully watched by the Bank of Canada, which meets next on June 5th. The BoC has held rates at 5% for six straight times, and restless consumers are looking for some rate relief as they continue to feel the squeeze of elevated rates and the high cost of inflation.

Will the BoC make a move and lower rates at the June meeting? This week’s positive inflation release appears to provide the support that the central needs to trim rates, as CPI fell from 2.9% to 2.7% in April. Inflation is not quite at the 2% target but both the headline and core rates have dipped below 3%, which is within the BoC’s “comfort level” of 1-3%. The downtrend in inflation provides strong support for an initial rate cut in either June or July.

In the US, PMIs provided positive news. Services PMI jumped to 54.8 in May, up from 51.3 in April and above the market estimate of 51.3. This was the highest level in a year and pointed to improving business activity despite high interest rates. Manufacturing showed weak expansion, with the PMI rising from 50.0 to 50.9. The 50 level separates contraction from expansion.

USD/CAD technical

• 1.3710 is a weak support level. Below, there is support at 1.3676.

• 1.3763 and 1.3797 are the next resistance lines.