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Canadian Dollar Talking Points

The recent rebound in USDCAD appears to be stalling ahead of the US Retail Sales report, and the exchange rate stands at risk of giving back the advance from the monthly-low (1.3238) as it fails to extend the series of higher highs and lows from earlier this week.

USDCAD Rate Rebound Fizzles Ahead of US Retail Sales Report

USDCAD attempts to retrace the sharp decline following the US Non-Farm Payrolls (NFP) report, but the rebound may prove to be short-lived as attention turns to the Federal Reserve interest rate decision on June 19.

Image of DailyFX economic calendar

It remains to be seen if the US Retail Sales report will keep USDCAD afloat as private-sector spending is anticipated to increase 0.7% in May, and a positive development may encourage the Federal Open Market Committee (FOMC) to retain the current policy as “participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate.

However, mixed data prints coming out of the economy may push the FOMC to alter the forward guidance for monetary policy as the U. of Michigan Confidence survey is expected to show a dip in household sentiment, and the central bank may show a greater willingness to switch gears later this year as President Donald Trump tweets that “the Fed interest rate way too high.

Image of fed interest rate forecast

In turn, Chairman Jerome Powell and Co. may implement material changes to the Summary of Economic Projections (SEP), and the fresh updates may produce headwinds for the US Dollar should Fed officials forecast a lower trajectory for the benchmark interest rate.

With that said, Fed Fund futures may continue to reflect overwhelming expectations for a September rate-cut, and the current environment may keep USDCAD as the exchange rate snaps the upward trend from earlier this year.

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USD/CAD Rate Daily Chart

Image of usdcad daily chart
  • Near-term outlook for USDCAD is no longer constructive as the advance from the April-low (1.3274) stalls ahead of the 2019-high (1.3665), with the break of trendline support raising the risk for a further decline in the exchange rate.
  • The move above the 1.3280 (23.6% expansion) to 1.3330 (38.2% retracement) region may turn out to be short-lived as USDCAD fails to extend the recent string of higher highs and lows, with a break/close below 1.3220 (50% retracement) bringing the 1.3120 (61.8% retracement) to 1.3130 (61.0% retracement) area on the radar.
  • Will keep a close eye on the Relative Strength Index (RSI) as it continues to track the bearish formation from March, with the next area of interest coming in around 1.2980 (61.8% retracement) to 1.3030 (50% expansion).

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.