Canadian Dollar hits three-week low as Retail Sales decline

• Canadian retail sales declined.

• US Manufacturing and Services PMIs accelerated.

• USD/CAD has climbed 200 points in one week.

USD/CAD continued to rally today but has pared most of those gains. In Europe, USD/CAD is trading at 1.3527

Canada’s core Retail Sales drop 

The markets were bracing for a weak Canadian retail sales report in February, and the numbers were indeed soft. Headline retail sales fell 0.2%, above the -0.6% gain but down from 1.6% in January. The core rate was even worse, with a decline of 0.7%, versus an estimate of -0.1% and a prior reading of 0.9%. The weak numbers extended the Canadian dollar’s woes, as USD/CAD is about 200 points higher since April 14th.

The March numbers could be far worse, with Statistics Canada forecasting a 1.4% slide in retail sales. It’s clear that the Bank of Canada’s aggressive tightening is dampening consumer spending, and high inflation has taken a bite out of disposable income. The BoC has paused at its last two meetings and left the benchmark rate at 4.50% and is monitoring the effects of its tightening cycle. If the economy decelerates, we can expect the BoC to continue to hold rates, as long as inflation doesn’t move upwards. Canada releases February GDP on Friday, with the economy expected to have expanded by just 0.2%.

In the US, Friday’s PMI reports for March beat the forecasts and indicated a slight acceleration in manufacturing and services. After six months of contraction, manufacturing pushed (barely) into expansion territory, rising from 49.2 to 50.4 (49.0 est.). Services rose to 53.5, up from 52.3 and above the estimate of 52.8 points. The strong numbers could reignite inflation and force the Fed to continue raising rates after the May meeting. Core inflation has been sticky and actually rose in March from 5.5% to 5.6% and we could see the core rate rise again in April.

USD/CAD technical

• There is resistance at 1.3577 and 1.3616.

• 1.3487 and 1.3435 are providing support.