USD/CAD erases Tuesday’s losses on a firm US dollar ahead of FOMC minutes

• USD/CAD climbs above the 20/50-DMA, up by 0.64% in the day.
• US Retail Sales beat estimations but were ignored by market players focused on FOMC minutes.
• According to TDS analysts, a cooler-than-expected Canadian inflation report would not deter the Bank of Canada (BoC) of hiking 75 bps.

USD/CAD breaks above the 20 and 50-day EMAs, refreshing weekly highs around 1.2936 in the North American session, triggered by modestly positive US Retail Sales data, while a risk-off impulse in the markets added to overall US dollar strength, to the detriment of the Canadian dollar.

The USD/CAD is trading above its opening price at 1.2916 after reaching a daily low of 1.2827 during the European session.

The US Department of Commerce reported that Retail sales for July rose by 10.3% YoY, beating estimates of 8.3%, while the monthly reading was unchanged, missing expectations. Excluding autos and gasoline, sales jumped 0.4% YoY, vs. -0.1%. Albeit the report was positive, market participants’ focus is still on the July Federal Reserve Open Market Committee (FOMC) minutes.

In the meantime, the US Dollar Index, rises 0.33%, at 106.825, while US crude oil prices, also known as WTI, is slightly down, trading at $87.01 PB, down 0.07%. The previously mentioned factors exerted upward pressure on the USD/CAD, with buyers reclaiming the 1.2900 figure.

On the Canadian side, on Tuesday, inflation figures for July were mixed, with the plain vanilla Consumer Price Index at 7.6% YoY, unchanged. Still, core figures were skewed to the upside, mainly CPI Trimmed-mean and CPI Median, at 5.4% and 5% year-over-year, respectively.

Analysts at TDS commented, “With core inflation averaging 5.3% y/y and CPI-common sitting at 5.5%, we do not expect the Bank of Canada to draw much comfort from the moderation in headline CPI and continue to look for a 75bp hike in September.”

All that said, the USD/CAD inched higher, boosted by expectations that US FOMC minutes would be leaning towards the hawkish side, consequently bolstering US bond yields, which may underpin the US dollar.

What to watch

The US economic docket will feature Fed Governor Michelle Bowman’s speech, alongside July’s FOMC minutes. The Canadian economic calendar will reveal the Producer Price Index (PPI) for July, alongside Retail Sales.

USD/CAD Key Technical Level