USDCAD: Mixed Fundamentals, Bullish Technicals

Quiet, consolidative trade has been the theme through today’s Asian and European sessions as traders were all too happy for a respite from the massive midweek volatility following the Fed’s less-hawkish-than-expected monetary policy statement and press conference. As we noted in our report on gold yesterday, the dollar immediately retraced most of its post-Fed losses, suggesting that the longer-term dollar-bullish trend remains intact, despite Wednesday’s speed bump.

Today’s only notable economic data releases came from Canada, where the results were somewhat mixed. Inflation data was relatively solid, with CPI rising 0.9% m/m in February vs. expectations of a 0.7% rise (Core CPI met expectations of 0.6%). Any bullish sentiment on the loonie was immediately washed away when traders saw Canada’s Retail Sales report though. That reading of consumer activity was down -1.7% m/m vs. -0.7% expected, while the Core Retail Sales report was even worse at -1.8% m/m against -0.4% anticipated. In combination, these reports suggest that the Canadian economy continues to muddle through the global deflationary backdrop, and they certainly don’t take an additional rate cut by the BOC off the table.

Technical View: USDCAD

Matching the theme of the last 16 hours of trade, USDCAD’s reaction to today’s mixed data has been rather lackluster, with rates edging up about 20 pips to test 1.2700 as of writing. From a broader perspective, USDCAD remains within its recent 1.2350-1.2800 range, but with the previously-supportive 50-day moving average finally catching up with price, pressure may be building toward a potential bullish breakout. The secondary indicators generally support this view, with the MACD holding above the “0” level and the RSI in bullish territory above previous support at 50.

From a fundamental perspective, central bankers will tank central stage next week, with FOMC members Williams, Evans, and Lockhart all speaking, while BOC Governor Poloz will also deliver coments on Thursday. Traders will also get the latest data on US CPI, New Home Sales, and Durable Goods Orders. If these speeches and reports support a continued monetary policy divergence between the US and its Northern neighbor, we could see USDCAD break through resistance at 1.2800 and potentially extend its rally toward the 10-year high around 1.3030 next.