USD/CAD extends its upside below the 1.3500 barrier, all eyes are on FOMC Minutes

• USD/CAD gains momentum below the 1.3500 mark following the upbeat US data.
• The Canadian Consumer Price Index (CPI) YoY rose to 3.3%, above the 3% expectation and the previous 2.8%.
• The headline Retail Sales climbed by 0.7% MoM, higher than the 0.4% estimated.
• Market players await the highly-anticipated FOMC Minutes on Thursday.

The USD/CAD pair extends its upside just below the 1.3500 barrier during the early Asian session on Wednesday. The upbeat July US Retail Sales caused the market to discount a more aggressive wager by the Federal Reserve (Fed) and favour the US Dollar (USD). The major pair currently trades near 1.3493, down 0.03% for the day.

On Tuesday, the Canadian Consumer Price Index (CPI) rose 0.6% MoM, while the annualised figure increased to 3.3%, above the 3% expectation and the previous 2.8%. The Core CPI, which excludes volatile oil and food prices YoY for July, increased to 3.2%, compared to the 2.8% predicted from the previous reading of 2.8%.

The report indicated that inflation in Canada remains high, and it raised the prospect of another interest rate hike by the Bank of Canada (BoC) in its September policy meeting. It’s worth noting that the BoC raised its benchmark overnight rate to a 22-year high of 5.0% after a four-decade high of 8.1% in inflation. It was the tenth rate hike since March 2022. Meanwhile, a decline in oil prices undermines the Canadian Dollar since Canada is the largest oil exporter to the United States.

On the other hand, the US Census Bureau reported on Tuesday that US Retail Sales came in above expectations. The headline figure climbed by 0.7% MoM, higher than the 0.4% estimated. Sales excluding the automobile sector came in at 1%, versus the expected 0.4%. Finally, the NY Empire Manufacturing Index for August declined to -19 from -1.

Apart from the data, Minnesota’s Federal Reserve (Fed) President Neil Kashkari stated that he is pleased with the progress on inflation, but it is still too high. Kashkari, on the other hand, questioned whether the Fed had done enough or whether more needed to be done.

Looking ahead, market participants will keep an eye on the US Building Permits, Housing Starts, and Industrial Production due on Wednesday. The closely watched event this week will be FOMC Minutes on Thursday. The event will be critical for determining a clear movement for the USD/CAD pair.