Canadian Dollar Rate Rises Toward Multi-Month Highs

The USD/CAD currency pair is making significant gains. Nearing levels not seen in months, the dollar conversion reached around 1.3500 and posted a daily increase of over 0.30%. The positive trend is being fueled by robust US Retail Sales data for July, strengthening the US dollar, while Canadian Consumer Price Index (CPI) figures exceeded expectations, boosting the Canadian dollar rate. However, the potential of the Canadian dollar is being held back by lower oil prices.

Strong US Retail Sales Data and Elevated Canadian CPI Lift USD/CAD

The USD/CAD pair displayed bullish momentum on Tuesday. The pair climbed to its highest levels since early June, hovering around the 1.3500 mark. This upward movement was a result of optimistic US Retail Sales data from July, which prompted the market to anticipate a more assertive stance from the Federal Reserve (Fed), favouring the US dollar. Simultaneously, the Consumer Price Index (CPI) figures from Canada for July surpassed expectations, lending strength to the Canadian dollar. The influence of these factors was moderated by lower oil prices, which limited the CAD’s potential.

Positive Canadian CPI and US Retail Sales Data

Canada’s Consumer Price Index (CPI) for July revealed a 0.3% month-on-month increase, while the annualized measure surged to 3.2%, exceeding the anticipated 3% and the previous 2.8%. The Core CPI figure also rose to 3.2%, surpassing the expected 2.8%. On the other hand, July’s US Retail Sales exceeded predictions, showing a 0.7% month-on-month rise, surpassing the expected 0.4%. Sales excluding the Auto sector also met expectations, posting a 1% increase compared to the projected 0.4%. These strong economic indicators led to market reactions favouring both the US dollar and the Canadian dollar.

Bank of Canada (BoC) Projections and Fed’s Next Steps

Looking ahead, the Bank of Canada (BoC) forecasts a potential 25% chance of a hike on September 6, increasing to around 55% by October 25 and further climbing to approximately 60% by December 6. These hawkish bets on the BoC may continue to support the Canadian dollar in upcoming sessions. Meanwhile, market attention shifts to the Federal Open Market Committee meeting minutes. The FOMC is waiting for its release on Wednesday for insights into the Federal Reserve’s future actions. According to the CME FedWatch tool, the prevailing sentiment suggests that the Fed might skip a rate hike in September, followed by a 25 basis points increase in November.

Technical Analysis and Market Outlook

USD/CAD’s short-term prospects appear bullish. With Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain positive. The pair’s position above the 20, 100, and 200-day Simple Moving Averages (SMA) indicates the dominance of buyers. The positive trend is further supported by the US Commerce Department’s report of a notable 0.7% rise in retail sales and Canada’s annual inflation rate exceeding expectations at 3.3% for July.

Key Data and Events to Watch

Investors will keep an eye on several key data releases and events for USD/CAD today. Those will include the building permits report, US crude oil inventories data, and the FOMC meeting minutes. The market will continue to react to economic indicators and central bank developments, shaping the pair’s trajectory in the coming sessions.