Canadian Dollar in holding pattern on Election Day

The Canadian dollar is showing limited movement on Monday. In the European session, USD/CAD is trading at 1.3868, up 0.10% on the day. There are no economic releases out of the US or Canada today.

Liberals expected to win Canadian election

It's Election Day in Canada. Prime Minister Mark Carney, who has only been in office since March, is favored to win the election. Carney's Liberal Party was badly trailing the Conservatives but US President Trump has ignited Canadian nationalism and turned the election race upside down.

Trump has talked about annexing Canada and although most Canadians don't expect that to happen, there is strong resentment against the US tariff policy, which has hit Canada even though the two countries have a free trade agreement.

Carney is viewed as a strong leader who can stand up to Trump and the markets have priced in a Liberal majority. If the Liberals are forced to make a coalition with the smaller parties, the new government would be considered less stable and that would likely trigger some CAD weakness. If the Conservatives manage to pull out a surprise election victory, the Canadian dollar would likely get a boost.

Canada's Retail Sales dips in February, rebounds in March

Canada's retail sales declined 0.4% m/m in February but bounced back in March with a strong gain of 0.7%. On an annualized basis, retail sales slipped to 4.7% in February, down from a revised 5.3% in January.

The improvement in March was driven by consumers making purchases ahead of US tariffs, but consumer spending is likely to deteriorate. The Bank of Canada will be keeping a close eye and will have to consider further rate cuts if upcoming economic data is weak. The BoC maintained the cash rate at 2.75% earlier this month and meets next on June 4.

USD/CAD technical

• USD/CAD is testing resistance at 1.3868. Above, there is resistance at 1.3880 and 1.3910.
• 1.3850 and 1.3838 are the next support levels.