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Canadian Dollar Eyes Retail Sales

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Continued gains, up more than 1% for the week. We’ll take a look at Canada later in the day.

Retail sales expected to rebound

After a rough start to the week, the Canadian dollar reversed direction and rose for three straight days as it retreated against its major counterparts.

The Ukrainian war has weakened risk appetite, weighing on the Canadian dollar. However, as Canada is a major exporter of the commodity, the surge in other commodity prices has largely mitigated the situation.

The Canadian dollar’s gains are likely to continue on Friday if retail sales in January are as expected. Both headlines and readings are expected to climb 2.4% sequentially.

Retail sales fell -1.8% in December and core retail sales fell -2.5% as the Omicron virus hampered holiday shopping.

Finally press the lift button to enter the rate hike cycle, and the Fed is expected to follow suit. Both central banks are under pressure to ease red-hot 40-year highs in Canada and the United States. Markets have already priced in up to six rate hikes this year as the Bank of Canada must take aggressive steps to keep inflation within its 1% to 3% target range. The dilemma for central bank policymakers is that inflation is not being driven by economic growth, and fears of stagflation mean the Bank of Canada will have to tread carefully so as not to stifle growth with a sharp rise in interest rates.

With the conclusion of the FOMC meeting, markets refocused on the war in Ukraine. Even during the negotiations, Russia continues to attack, but the market hopes that the talks will lead to a breakthrough that this time will end the fighting. We’ve seen these hopes dashed before, but optimism has revived risk appetite and pushed the dollar lower. Any sign of progress in the talks could prolong the dollar’s losses.

USD/CAD Technical

USD/CAD faces resistance at 1.2653 and 1.2777, with support at 1.2562 and 1.2438

USD/CAD daily chart
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