USD/CAD stumbles from weekly highs, set to finish the week below 1.3050

USD/CAD extends its decline from weekly highs around 1.3220s reached on Thursday, spurred by elevated US PPI data, which showed that inflation is far from peaking, triggering an uptick in expectations of a Fed 100 bps hike, which later easied as Fed policymakers pushed back against those assumptions.

The USD/CAD is exchanging hands at 1.3029, dropping almost 0.70%, on a day where the USD/CAD started trading around 1.3110s, near the daily highs, and plunged on a soft US dollar, hitting a daily low at around 1.3013, early in the North American session.

USD/CAD drops on risk-on, soft US dollar, and high oil prices

Global equities portray an upbeat market mood. Nevertheless, the market narrative stays the same, with high inflation, worldwide central banks hiking rates, and recession fears lingering in traders’ minds. The greenback remains heavy, down by almost 0.50%, as portrayed by the US Dollar Index, at 108.111. in the commodities space, US crude oil, namely WTI, rises 1.49%, at $97.90 PBD, a headwind for the USD/CAD, due to the close correlation between the Canadian dollar and oil prices.

On Friday, the US Department of Commerce reported that US Retail Sales rose by 1% YoY, beating the estimations of 0.8%, and also topped May’s dismal reading of -0.3%, a signal of consumers’ resilience and strength, despite Fed hikes. Additionally, the University of Michigan Consumer Sentiment at 51.1 vs. 49.9 estimated, exceeding forecasts, while inflation expectations tempered, with consumers seeing inflation at 2.8% over a 5-year horizon, lower than 3.1% in June.

On the Canadian side, the Friday docket was empty. However, the Bank of Canada’s decision to hike rates by 100 bps caught the markets by surprise and capped any further gains by the greenback. At the press conference, the BoC Governor Macklem said that front loading rate increases now would help avoid even higher rates in the future while adding that front-loaded cycles tend to be followed by softer landings.

What to watch

The week ahead, the Canadian docket will feature Housing Starts, Inflation data, and Retail sales. The calendar will be packed on the US front, Housing Starts, Building Permits, Existing Home Sales, Initial Jobless Claims, and July’s S&P Global PMIs.

Also read: USD/CAD trades volatile, after an unexpected BoC 1% rate hike, and US inflation above 9%

USD/CAD Price Analysis: Technical outlook

From a technical perspective, the USD/CAD favors longs, but a daily close below the May 12 high at 1.3076, might open the door for a pullback before resuming upwards. Also, traders should note that the Relative Strength Index (RSI) at 56.68 pierced below the RSI’s 7-day SMA, triggering a sell signal that a cross below the 50-mid line could further confirm.

Therefore, the USD/CAD first support will be 1.3000. A break below will send the pair sliding towards July 13 low at 1.2936, followed by a push lower to the 50-day moving average (DMA) at 1.2862.