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Loonie Sputters Following Weak CPI, Retail Sales

Published October 24, 2016
  • The greenback has broken out of its multi-month range against the Canadian dollar as poor inflation and retail sales hurt the Loonie last week
  • USDCAD closed above key technical resistance on Friday and continues to trade higher to start the week with spot hovering in the mid 1.33's 
  • The landscape for the Loonie is looking increasingly difficult; the discussions that the BoC had regarding a rate cut last week certainly look even more relevant following Friday's data
  • From a fundamental perspective, the market is pricing in 10bps of easing from the BoC by May 2017 and 20bps of tightening from the US Fed over the same time period…
  • …this is indicative of a market that remains biased to USD strength over the medium term 
  • The next major technical target for USDCAD comes in at 1.3575, followed by 1.3835
  • Support for USD should come in near congestion and former resistance circa 1.3300, followed by the 200 DMA at 1.3152
  • Adding to the difficulty facing the Loonie, Q4/Q1 is a period of seasonal strength for USD, with average gains of 5.5% over the past 4 years between October and March (Chart 2, 2012-2016)
  • This week is packed with top tier data from the US with little from Canada to offset save for today's wholesale trade data for August which came in at 0.8% compared with 0.6% expected
  • The US reports housing data, consumer confidence, durable goods and GDP this week (Chart 4)

Charts: (1) USDCAD breaks out to the topside. (2) USDCAD seasonal study shows bias for USD gains with average gains of 5.5%. (3) Fed Rate Hike Odds above 60% for Dec. (4) Economic Calendar.