HomeContributorsFundamental AnalysisCanadian Dollar Gains Ground After Dismal US Retail Sales

Canadian Dollar Gains Ground After Dismal US Retail Sales

The Canadian dollar has paused on Thursday, after posting strong gains a day earlier. Currently, USD/CAD is trading at 1.2491, down 0.01% on the day. On the release front, Canada releases ADP Non-farm Employment Change. In the US, there are a host of indicators, highlighted by PPI and Core PPI reports for January. Both indicators are expected to record gains after declining in the December readings. The US will also release key manufacturing reports and unemployment claims. On Friday, the US releases key housing and consumer confidence numbers. Canada will publish Manufacturing Sales.

It’s been a rough February for the Canadian dollar, but the currency jumped on the bandwagon on Wednesday, as the US dollar posted broad losses. The Canadian currency posted its best one-day performance in 2018, gaining 0.09% against the greenback. The US dollar sagged as investors focused on poor retail sales reports in January. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%. On the inflation front, CPI jumped 0.5%, above the estimate of 0.3%. Last week’s market sell-off, which sent the US dollar higher against other currencies, was triggered by fears of higher inflation. This strong CPI reading has raised concerns that investors could again lose their risk appetite and send the Canadian dollar lower.

Will the recent volatility in the markets affect interest rate policy in the US? Currently, the Fed has projected three hikes this year, but that could change to four or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion. The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, when he started his new position last week. Powell sought to send a reassuring message earlier this week, declaring that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

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