USD/CAD rebounds after printing fresh two-week lows sub-1.2800, still on course for weekly decline

• USD/CAD is back to trading flat in the 1.2830 area after hitting more than two-week lows earlier in the session.
• The pair is on course to end the week lower by about 0.5% amid USD weakness and hot Canadian CPI.

USD/CAD hit its lowest level in more than two weeks on Friday in the 1.2770s, though was unable to muster a sustained break below earlier weekly lows in the 1.2780 area or even the 1.2800 level. At current levels close to 1.2830, the pair is trading broadly flat on the day and is on course to drop about 0.5% on the week, which would be the biggest weekly drop since March, with the pair now trading about 2.0% below last week’s multi-month highs in the upper-1.3000s.

An improvement in global risk appetite on the last day of the week after China’s PBoC eased financial conditions in the country with a surprise cut to its benchmark 5-year interest rate (called the Loan Prime Rate) helped keep the pair trading with a negative bias. But the pair has also been weighed this week by a combination of a weakening US dollar and strong Canadian economic data.

Regarding the former, despite Fed policymakers sounding hawkish throughout the week, the buck seems to be suffering from profit-taking, with some also citing weak Philly Fed manufacturing data on Thursday as sparking fears about the state of the US economy. Meanwhile, the YoY rate of Consumer Price Inflation in Canada was revealed on Wednesday to have unexpectedly risen to fresh multi-decade highs at 6.8%, pumping expectations for further rapid tightening from the BoC and boosting the loonie at the time.

Next week, Canadian April Retail Sales data on Thursday will be closely scrutinized as an update as to the state of health of the Canadian consumer, but the main drivers of the USD/CAD pair will likely continue to come from risk appetite, commodity prices and US economic events. May flash US PMIs will be released on Tuesday, the minutes of the last Fed meeting will be out on Wednesday, and the second estimate of US Q1 GDP growth will be out on Thursday followed by the April Core PCE inflation report on Friday.