USD/CAD: Canadian Dollar Rallies After Solid Inflation Data, Retail Sales Next

The US dollar slipped lower versus the Canadian dollar on Wednesday. The US dollar Canadian dollar dropped to a low of 1.3114. The US dollar is on track to weaken for the fourth straight week versus its Canadian counterpart.

The US dollar declined in the previous session despite a week of stronger than forecast data. On Tuesday housing data impressed investors, as did manufacturing and industrial production numbers. Data showed that US manufacturing output increased 1.1% month on month in November, a significant improvement on the -0.7% decline in October. The data suggests that the slump in the US manufacturing sector is easing and the sector is rebounding.

There was no influential US economic data on Wednesday. With a lull in US — China trade headlines, investors will remain focused on the US economic calendar. Today sees the release of the US jobless claims and existing homes sales.

The dollar is not expected to react to the fallout from Trump’s impeachment trial. Given that the chances of Trump being ousted are extremely slim, the dollar is not reacting to the Trump story.

Canadian Dollar Looks To Retail Sales

The Canadian dollar rallied following the release of Canadian inflation data on Wednesday. Data showed that consumer prices picked up be more than expected in November. The consumer price index, the Canadian central bank’s preferred measure of inflation rose to 2.2% in November compared to a year ago. This was up from 1.9% year on year in October.

The increase in inflation was driven principally by higher energy prices, which have increased 1.5% year on year. The report also showed that core inflation, which strips out more volatile items such as food and fuel rose 2.4% year on year. This s the highest that core inflation has been since March 2009.

The Canadian dollar rallied following the strong inflation report as central banks are more likely to hike rates than cut interest rates when inflation is strong. Investors will now look ahead to Friday’s retail sales data for further clues over the health of the Canadian economy.

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