The Canadian dollar is coming off its best week of the year, in which it gained 1.14%. The currency has posted slight gains on Monday, dropping below the 1.26 line for the first time since late January.
Retail sales rebound
The Canadian dollar has extended its rally on Monday, after posting four straight winning days. USD/CAD fell 1.14% last week, as the Canadian dollar enjoyed its best week this year. The week ended on a positive note, as retail sales for January bounced back after sharp losses in December. Headline retail sales rose 3.2% MoM, smashing the estimate of 2.4%. Core retail sales rose 2.5%, above the estimate of 2.4%. In December, the headline figure fell by -2.0% and core retail sales by -2.7%.
The Fed finally hit the rate trigger last week, raising interest rates for the first time since December 2018. The Bank of Canada is expected to keep pace with a rate hike in April, after raising rates from 0.25% to 0.50% at the March meeting. The markets are expecting the BoC to be aggressive in its fight against high inflation and have priced in up to six more hikes this year. Similar to the Fed, the BoC is concerned with stagflation and will have to be cautious as it raises rates, in order not to choke growth as the economy emerges from Covid.
The war in Ukraine has raged for a month, and the Russian invasion has stalled in the face of stiff Ukrainian resistance. Civilian casualty figures continue to rise as Russia has stepped up its campaign of hitting civilian targets. Over the weekend, the Turkish foreign minister said that the two sides were making progress on a peace agreement, but previous such announcements all proved to be premature. If there are tangible signs of progress towards a ceasefire, the Canadian dollar would likely continue its upswing.
USD/CAD Technical
- USD/CAD faces resistance at 1.2688 and 1.2822
- 1.2580 is under pressure in support. Below, there is support at 1.2504
