Technical Bias: Strongly Bearish
- USDCAD declines for fourth consecutive day, down more than 500 pips since Monday.
- US CPI rates in March: 0.2% (MoM), -0.1% (YoY).
- Canada CPI rates in March: 0.7% (MoM), 1.2% (YoY).
The USDCAD declined for a fourth consecutive day on Friday, extending its losses to nearly 500 pips following divergent Canadian and US CPI data.
The USDCAD declined 75 pips or 0.62 percent to 1.2120 in Friday’s morning session. The pair has been in freefall since Monday, having shed around 500 pips in the process. The 1-hour chart is strongly bearish, as the markets continue to search for a bottom. The USDCAD is testing the 1.2111 support level, having bottomed out at 1.2089 in intraday trade. A clean break below that level exposes 1.2032. On the upside, initial resistance is likely found at 1.2299.
The Canadian dollar was supported on Friday by much stronger than expected consumer price inflation (CPI) data. Consumer prices in Canada rose 0.7 percent in March, down from 0.9 percent in February but higher than estimates calling for 0.5 percent. Compared to a year earlier, the CPI rate was 1.2 percent, well above forecasts calling for zero.
Canada’s core CPI rate, which excludes volatile goods like food and energy, climbed 0.6 percent in March and was up 2.4 percent annually, official data showed.
Strong inflation figures reinforce the Bank of Canada’s assertion that that impact of the oil price collapse on the economy is transitory. BOC Governor Stephen Poloz expects Canada’s recovery to strengthen in the latter half of the year, as a weak loonie continues to fuel the country’s large export sector.
Statistics Canada also said retail sales in February saw the biggest increase in eight months, a sign the consumer-led recovery remains in full swing. Retail sales climbed 1.7 percent, following a drop of 1.4 percent in February that was originally reported at 1.7 percent. The figure was well above the median estimate of economists, which called for a gain of 0.5 percent.
In volume terms, retail sales were up 1.3 percent, as all 11 of the retail sub-categories posted gains. Sales at gasoline stations increased 2.2 percent. That was the first increase since June of last year.
Inflation in the United States remained muted in March, the Commerce Department reported on Friday. The monthly CPI rate increased 0.2 percent, as expected, as increases in energy and shelter more than offset weaker food prices. Compared to March 2014, consumer prices were down 0.1 percent.
Tame inflation gives the Federal Reserve more ammunition to keep interest rates near zero for a while longer. While policymakers are divided on when to increase rates, the latest Fed projections suggest the path toward policy normalization will be slow and steady.