Canadian Dollar remains vulnerable after strong US Retail Sales

• Canadian Dollar gives away gains as USD bounces up following strong Retail Sales data.
• Investors’ concern that Middle East conflict might escalate provides additional support to the safe-haven US Dollar.
• Oil prices have depreciated nearly 3.5% from early April highs, adding negative pressure to CAD.

The Canadian Dollar (CAD) recovery attempt seen during Monday’s European session has been short-lived. The US Dollar has resumed its bullish trend as better-than-expected retail consumption data has confirmed the strong momentum of the US economy.

The strong Retail Sales figures come after last week’s sticky inflation numbers, strengthening the view that the Federal Reserve (Fed) will be keeping rates higher for longer. This is supporting the US Dollar, which has additional support from the volatile situation in the Middle East. Israel is considering retaliating against Iran, which could spark a regional conflict, which ultimately increases demand for the USD on the back of its safe-haven status.

In Canada, February’s Manufacturing Sales data improved, as expected, although Wholesale Sales stalled. Furthermore, Oil prices, Canada’s main export, are pulling back from last week’s highs, adding pressure to the Loonie.

Daily digest market movers: USD/CAD maintains its bullish tone on bright US data and risk aversion

• Canadian Dollar retraces previous gains, with the USD bouncing up on upbeat consumption data. The daily chart is practically flat.
   
• US Retail Sales increased 0.7% in March from 0.9% in February, well above the 0.3% increment expected by the market.
   
• Excluding autos, total sales of retail and food stores have risen 1.1%, their best reading since January 2023. The market had expected a 0.4% advance.
   
• NY Fed President John Williams has acknowledged the importance of the recent inflation levels but assured that he expects rate cuts to come this year.
   
• Canada’s Manufacturing Sales increased 0.7% in February from 0% in the previous month, in line with the market forecasts.
   
• Canadian Wholesale Sales, however, stalled in February against market expectations of a 0.8% increase.
   
• WTI Oil prices have retreated to two-week lows at the mid-range of $84, down from the $87.60 high reached over the previous weeks.
  

The US Dollar maintains the bullish bias intact, with the Loonie’s recovery attempt capped well above previous highs in the 1.3700 area so far.

The pair broke the top of last month’s trading channel last week and is now testing the resistance area at 1.3780. The USD/CAD pair is at overbought levels but not at extremes, with the measured target of the broken channel at the mid-November high of 1.3845. On the downside, supports are 1.3680-1.3660 and below there at 1.3545.

USD/CAD Daily Chart