USD/CAD Resistance Limits Gains Pre-Canadian Retail Sales Data
The risk-sensitive Australian Dollar edged higher in the Asian session, whilst the safe haven US Dollar and Japanese Yen lost ground.
Japan’s Nikkei 225 advanced, even as Japanese core inflation declined -0.4% August compared to a year earlier. Australia’s ASX 200 dropped -0.1%.
Gold and silver picked up as US 10-year Treasury yields traded flat.
Canadian retail sales for July and the preliminary US consumer confidence print for September will be in focus later today.
Inaction from the Bank of Canada to Support CAD
Canadian retail sales data for July may fuel the USD /CAD selloff from the monthly high,. A better-than-forecast print would support the Bank of Canada’s (BoC) view that the Canadian economy is recovering post lockdown more quickly that initially expected, potentially justifying the BoC’s decision to stick with the status quo.
The BoC voted to keep rates on hold at the lower bound of 0.25%”. The central bank also said it would buy at least $5 billion per week Canadian government bond” at its September meeting.
The BoC committed to provide the monetary policy stimulus necessity to support the economy and achieve the inflation objective. Given that inflation is at 0.1% the more, the rationale for additional stimulus exists
BoC Governor Tiff Macklem’s made the point that “with food inflation elevated at 3%, most don’t feel that inflation is falling” at the Federal Reserve’s Jackson Hole symposium. This could point to Canadian policymakers increasingly considering rolling back some of the BOC’s existing settings if economic data continues to beat..
As lockdown measures ease, economic growth is likely to pick up. The Canadian economy could outperform that of the US in the short term if Canada contains a second wave of covid. if Canada is able to successfully suppress a fresh ‘second wave’ of coronavirus infections.
Average daily cases are double the levels seen in July prompting Chief Public Health Officer Theresa Tam to warn the situation could change and they could lose control of the virus’ spread very quickly.
That said, the death toll remains low in single figures, which coud suggest that tightening of lockdown measures is relatively unlikely.
USD/CAD could move to fresh month lows if upcoming economic data encourages Canadian policymakers to retain their wait-and-see approach.