USD/CAD struggles below 1.2400 post-Canadian Retail Sales, focus remains on FOMC

The USD/CAD pair dropped to fresh one-month lows in reaction to upbeat Canadian Retail Sales data, albeit quickly recovered few pips thereafter. The pair was last seen hovering in the neutral territory, just below the 1.2400 round-figure mark.

A more hawkish BoC decision to reduce its weekly asset purchases and bring forward the guidance for the first interest rate hike to the second half of 2022 continued underpinning the Canadian dollar. Apart from this, a fresh leg up in crude oil prices provided an additional boost to the commodity-linked loonie and kept a lid on any meaningful recovery for the USD/CAD pair.

The pair lost some ground during the early North American session after Statistics Canada reported Retail Sales in Canada rose by 4.8% in February. The reading was well above consensus estimates pointing to an increase of 4%. The downside, however, remained cushioned amid a modest US dollar strength, bolstered by some follow-through rise in the US Treasury bond yields.

Moreover, investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest FOMC monetary policy decision. The US central bank is widely expected to leave its monetary policy settings unchanged. The Fed Chair Jerome Powell might also stick to the view that the recovery is incomplete and that more support is warranted.

That said, rising inflation expectations might force the Fed to start laying the groundwork for a future policy tightening. Any hawkish signals should provide a strong lift to the USD and prompt some aggressive short-covering move around the USD/CAD pair. Apart from this, investors will also monitor US President Joe Biden’s address to a joint session of Congress.

Technical levels to watch