After a moderate pullback last week on soft US inflation readings, the US dollar has rebounded strongly this week to resume and extend its rising trend that has been in place for the past month. This strong rebound and recent overall support for the US dollar have been driven in part by rising interest rate expectations as displayed in surging government bond yields, despite tepid inflation readings within the past two weeks. This week, the benchmark 10-year US Treasury yield rose above 3.10%, marking its highest point since mid-2011.
Meanwhile, the energy-correlated Canadian dollar has been helped along recently by a sharp surge in crude oil prices in the aftermath of US President Trump’s announced withdrawal from the Iran nuclear deal last week. Also last week, key Canadian employment figures came out mixed. While Canada actually lost 1.1K jobs in April against previous expectations of an 18K increase, this disappointment was somewhat offset by higher-than-expected wage growth and a rising percentage of full-time workers versus part-time workers.
Looking ahead, Friday brings more key economic data readings out of Canada, with both the consumer price index (CPI) for April and retail sales numbers for March scheduled to be released. Consumer inflation is expected to have remained steady in April at +0.3%. March retail sales is also expected at +0.3%, while core retail sales (excluding automobiles) is expected at +0.5% after the previous month’s disappointing flat reading.
Ahead of these important Canadian data releases, USD/CAD is generally still in the midst of a pullback from last week's high just short of the 1.3000 handle, a key resistance level. In the process, the currency pair has dropped back below its key 50-day moving average. The next directional move for the pair will be driven largely by Friday's Canadian data releases, crude oil prices, and whether the US dollar remains in surge mode or begins to lose momentum. As the US dollar has been technically due for a pullback, any stronger-than-expected Canadian data on Friday could result in a further drop for USD/CAD. In this event, the next major downside support barrier lies around the 1.2700 area. Any breakdown below 1.2700 could open the way for further downside towards the 1.2526 low of mid-April.
Investopedia does not provide individual or customized legal, tax, or investment services. Since each individual’s situation is unique, a qualified professional should be consulted before making financial decisions. Investopedia makes no guarantees as to the accuracy, thoroughness or quality of the information, which is provided on an “AS-IS” and “AS AVAILABLE” basis at User’s sole risk. The information and investment strategies provided by Investopedia are neither comprehensive nor appropriate for every individual. Some of the information is relevant only in Canada or the U.S., and may not be relevant to or compliant with the laws, regulations or other legal requirements of other countries. It is your responsibility to determine whether, how and to what extent your intended use of the information and services will be technically and legally possible in the areas of the world where you intend to use them. You are advised to verify any information before using it for any personal, financial or business purpose. In addition, the opinions and views expressed in any article on Investopedia are solely those of the author(s) of the article and do not reflect the opinions of Investopedia or its management. The website content and services may be modified at any time by us, without advance notice or reason, and Investopedia shall have no obligation to notify you of any corrections or changes to any website content. All content provided by Investopedia, including articles, charts, data, artwork, logos, graphics, photographs, animation, videos, website design and architecture, audio clips and environments (collectively the "Content"), is the property of Investopedia and is protected by national and international copyright laws. Apart from the licensed rights, website users may not reproduce, publish, translate, merge, sell, distribute, modify or create a derivative work of, the Content, or incorporate the Content in any database or other website, in whole or in part. Copyright © 2010 Investopedia US, a division of ValueClick, Inc. All Rights Reserved
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.