The US dollar surged against the loonie on Friday after a strong miss of Canadian retail sales increased bets the Bank of Canada may cut interest rates at their next meeting.
The retail sales report showed a strong fall in sales of 1.2% to $50.9 billion in October, missing market expectations of a 0.5% rise.
Excluding automobiles, the total value of sales at the retail level fell by 0.5% in October, while forecasts were set at a 0.2% rise. This shows that one of the main reasons for the decline were lower sales at motor vehicle and parts dealers, but building material and garden equipment also recorded a decrease in sales.
Energy prices have also weakened slightly and US-Canada spreads have somewhat narrowed in today’s trade, putting additional selling pressure on the loonie.
In the United States, the third estimate GDP report for the third quarter showed that economic activity increased at an annual rate of 2.1%, matching market forecasts and the Commerce Department’s second estimate. Imports, on the other hand, were higher than previously anticipated.
The report shows that the US economy has managed to maintain its moderate growth as the year ends, backed by a robust labour market and strong consumer spending. In the second quarter, real GDP growth came in at 2.0%.
From a technical standpoint, the USD/CAD pair continued to consolidate recent losses that started in early December and pushed the pair to a 7-week low of 1.3102 on Wednesday.
Today’s October retail sales from Canada triggered a strong sell-off in the loonie, moving the pair to an intraday high of 1.3181. The upper 1.31s could provide some resistance for USD/CAD which traded at 1.3168, as of 2:35 p.m. London time.
