The Canadian dollar has shown a broadly softer performance in recent financial assessments, retreating against most of its major currency counterparts. The currency has declined by a third per cent against the US dollar and the British pound. Additionally, it is struggling against the Japanese yen, placing it near the bottom of currency rankings. This movement comes amidst disappointing domestic economic data, further complicating Canada’s financial stability outlook.
February’s economic data revealed a contraction in retail sales, which declined by 0.1% month-on-month, missing the modest growth forecasts of 0.1%. This was a slight improvement from the previous month’s decrease of 0.3%, yet the expectation was for a stabilisation or slight recovery. The performance, excluding auto sales, dropped 0.3% against predictions of no change from the previous month, raising concerns. This indicates a broader weakness in consumer spending, a critical driver of economic growth.
Key economic indicators from the United States are poised to influence market dynamics significantly. The US GDP data for the first quarter is expected to show a growth rate of 2.5% annualised, a slowdown from the previous quarter’s 3.4%. The upcoming Personal Consumption Expenditures (PCE) Price Index will provide crucial insights into inflation trends. These events, scheduled for Thursday and Friday, will likely impact investor sentiment and could catalyse further volatility for USD/CAD.
The USD/CAD pair recently had its first positive trading day after five losses, now trading above 1.3700. Technical analysis shows that the 200-hour exponential moving average (EMA) of 1.3715 is important to observe. Similarly, the 200-day EMA near 1.3522 also holds significance. The recent rally to 1.3850 indicates potential resistance, shaping the short-term trajectory of this currency pair.
The broader market sentiment towards the USD/CAD remains cautious. Observations suggest the disappointing retail sales data have substantially undermined confidence in the CAD’s stability. Moreover, the broad-market recovery of the US dollar is exerting additional downward pressure on the Canadian currency as market participants adjust their expectations following a surge in risk appetite earlier in the week. As analysts continue to evaluate these dynamics, the Canadian dollar’s path will heavily depend on domestic economic performances and external market influences, especially from the US.
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