USDCAD Forecast: Canadian dollar slips as CPI and retail sales fall

The Canadian dollar has lost ground in Friday’s North American session, erasing the losses seen earlier in the day. Currently, USD/CAD is trading at 1.3120, up 0.15% on the day. On the release front, key Canadian consumer indicators declined in September. Core CPI dropped by 0.4%, weaker than the estimate of -0.1%. Core Retail Sales declined by 0.4%, missing the estimate of 0.1%. Retail sales missed the forecast of 0.1%, with a reading of -0.4%. In the U.S, there are no key releases. Existing Home Sales is expected to drop to 5.29 million.

Employment numbers are important leading indicators of consumer spending, and there was good news on Thursday, ahead of key Canadian retail sales reports on Friday. ADP nonfarm payrolls jumped 28.8 thousand in September, up from 13.6 thousand a month earlier. Will Friday’s dismal consumer numbers affect the Bank of Canada’s plan to raise rates next week? The markets are still expecting the BoC to raise rates by a quarter-point, which would mark the third rate increase in 2018. With Canada, the U.S and Mexico about to enter the USMCA, which replaces the NAFTA pact, the last obstacle for the BoC on the path to normalization has been removed and analysts are now expecting three rate hikes in 2019, up from a forecast of two hikes just a few months ago.

The U.S dollar was broadly higher on Thursday, after a hawkish tone from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

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USD/CAD Fundamentals

• 8:30 Canadian CPI. Estimate 0.1%. Actual -0.4%

• 8:30 Canadian Core Retail Sales. Estimate 0.1%. Actual -0.4%

• 8:30 Canadian Common CPI. Actual 1.9%

• 8:30 Canadian Median CPI. Actual 2.0%

• 8:30 Canadian Retail Sales. Estimate 0.3%. Actual -0.1%

• 8:30 Canadian Trimmed CPI. Actual 2.1%

• 8:30 Canadian Core CPI. Actual 0.0%

• 10:00 US Existing Home Sales. Estimate 5.29M

Open: 1.3086 High: 1.3089 Low: 13037 Close: 1.3120

USD/CAD Technical

USD/CAD posted has ticked lower in the Asian session and has recorded stronger losses European trade. The pair has reversed directions in the North American session and posted strong gains

• 1.2970 is providing support

• 1.3067 has switched to a support role following losses by USD/CAD on Friday

• Current range: 1.2970 to 1.3067

Further levels in both directions:

• Below: 1.2970, 1.2831, 1.2733 and 1.2649

• Above: 1.3067, 1.3198 and 1.3292