USD/CAD struggles to extend recovery ahead of Canadian Retail Sales, oil defends 71.00

• USD/CAD is making efforts for extending its recovery above 1.3250 ahead of Canadian Retail Sales.
• What’s driving caution in the market is the approach to be adopted by the Fed in its journey toward achieving price stability.
• Monthly Retail Sales data is seen expanding by 0.2% against a contraction of 1.4% witnessed earlier.

The USD/CAD pair is struggling in extending its recovery above the immediate resistance of 1.3250 in the London session. A volatile action is anticipated from the Loonie asset as investors are awaiting the release of the Canadian Retail Sales data for April.

S&P500 futures have turned positive after recovering gains generated in the Asian session. A decent recovery has been observed in the risk appetite of market participants. However, the overall market mood is still cautious as investors are awaiting fresh guidance from Federal Reserve (Fed) chair Jerome Powell in his testimony.

The US Dollar Index (DXY) is inside the woods as investors have been sidelined. What’s driving caution in the market is the approach to be adopted by the Fed for its further journey toward achieving price stability. Investors want to know whether the central bank will hike interest rates further by 50 basis points (bps) as confirmed in the monetary policy statement or will adopt a data-centric approach to maintain the growth outlook.

Meanwhile, the Canadian Dollar will be impacted by the Retail Sales (April) data. Monthly Retail Sales data is seen expanding by 0.2% against a contraction of 1.4% witnessed earlier. Economic data excluding automobile numbers is seen expanding by 0.4%. This indicates that demand for automobiles has remained weak as higher inflationary pressures are biting the income of households. Also, individuals are postponing demand for automobiles to avoid higher installment obligations due to elevated interest rates by the Bank of Canada (BoC).

On the oil front, the oil price is showing topsy-turvy moves above $71.00 despite a dovish policy stance by the People’s Bank of China (PBoC). It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices will support the Canadian Dollar.