On Friday, the Canadian dollar has posted small gains. In the North American session, USD/CAD is trading at 1.2136, down 0.22% on the day.

Canada releases Manufacturing Sales will be released later in the day (12:30 GMT). This is an important indicator and should be treated as a market mover. The February reading hit a 6-month low, at -1.6%. However, analysts are predicting a strong rebound for March, with a consensus of +3.5%. If the release is within expectations, we could see the Canadian dollar respond with gains.

The US releases retail sales for April (12:30 GMT), with small gains expected after the sharp gains recorded in March. Month-on-month, retail sales is expected at 1.0%, while core retail sales is projected at 0.5%.

Fed says no change in policy

After the surge in US consumer inflation, producer price inflation also outperformed. PPI for April rose 0.6%, double the estimate of 0.3%. This could have fanned the fears of higher inflation, but the Fed has activated a charm offensive, with speakers hammering home the message that there will be no change in monetary policy anytime soon.

The markets appear to have internalized the message, as treasury bonds and the US dollar have dipped, while equities are higher. Still, if upcoming US data is strong, investors could again become jittery about inflation. The Fed has insisted that inflation risks are transitory, and that it is premature to talk about reducing its massive stimulus programme, even with the recovery well underway. However, if the next inflation report also points to high inflation, the Fed may find that the market is more skeptical about its stance that inflation is nothing to worry about.

USD/CAD technical

USDCAD

  • USD/CAD faces resistance at 1.2277 and 1.2427.

  • There is support at 1.2052. Below, there is support at 1.1977.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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