CAD Surges on Strong Retail Sales and CPI, Dollar Trying to Recover

Canadian Dollar soars in early US session after impressive economic data. Head line retail sale rose 1.5% mom in October versus expectation of 0.3% mom. Ex-auto sales rose 0.8% mom versus expectation of 0.4% mom. Inflation data also came in generally stronger than expected. Headline CPI accelerated to 2.1% yoy, up from 1.4% yoy and beat expectation of 2.0% yoy. CPI core median rose to 1.9% yoy, up from 1.7% yoy and beat expectation of 1.7% yoy. CPI core trim rose to 1.8% yoy, up from 1.5% yoy, beat expectation of 1.5% yoy. Nonetheless, CPI core common slowed to 1.5% yoy, down from 1.6% yoy and missed expectation of 1.7% yoy. The set of data adds to the case for BoC to raise interest rate again in Q1. USD/CAD dipped to as low as 1.2719, comparing to this week’s high at 1.2919.

US initial claims jumped 20k, Dollar trying to recover

US initial jobless claims rose 20k to 245k in the week ended December 15, well above expectation of 234k. Nevertheless, it should be noted that prior week’s 225k was an ultra-low level." Four week moving average rose 1.25k to 236k. Continuing claims rose 43k to 1.93m in the week ended December 8. The set of jobless claims data did nothing to change the healthy outlook of the job market. Also from US, Philly Fed manufacturing index rose to 26.2 in December, up from 22.7 and beat expectation of 20.8. House price index rose 0.5% mom in October. Q3 GDP growth was finalized at 3.2% annualized, downwardly revised from 3.3%.

Dollar traders generally firmer today except versus Aussie and Loonie. Still, the greenback is in red against all except Yen and Swiss Franc for the week. There is little support from the passing of tax bill in the Congress.

Released elsewhere, UK public sector bet borrowing rose to GBP 8.1b in November. Gfk consumer confidence dropped to -13 in December. Swiss trade surplus widened to CHF 2.63b in November. New Zealand GDP grew 0.6% qoq in Q3.

BOJ Maintained Accommodative Policies, Kuroda Sent No Signal About Normalization.

As widely anticipated, BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. The central bank has turned more upbeat on the economic outlook, especially on Capex and consumption. Goushi Kataoka was again the lone dissent as he supported bond purchases so as to facilitate the decline of 10-year (or over) bond yields. Governor Kuroda’s speech at the press conference has not tilted towards less easing/ policy normalization in the near-term. More in BOJ Maintained Accommodative Policies, Kuroda Sent No Signal About Normalization.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2808; (P) 1.2844; (R1) 1.2870; More….

USD/CAD drops sharply to as low as 1.2719 in early US session. But it still staying in range between 1.2598/2919. Intraday bias stays neutral at this point. As noted before, as s long as 1.2598 resistance turned support holds, near term outlook remains bullish. On the upside, firm break of 1.2916 will resume the rise from 1.2061 and target 1.3065 medium term fibonacci level next. However, sustained break of 1.2598 will argue that rebound from 1.2061 has completed after hitting 55 week EMA (now at 1.2885). Near term outlook will be turned bearish in this case.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we’d favor the case that fall from 1.4689 is a correction. Rise from 1.2061 medium term bottom should now target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Firm break there will target 1.3793 key resistance next (61.8% retracement at 1.3685). We’ll now hold on to this bullish view as long as 1.2450 support holds.

Economic Indicators Update