The Canadian Dollar continues to strengthen against the US Dollar on Friday, bolstered by a generally weaker Greenback and robust Canadian Retail Sales figures that exceeded expectations. As of the current moment, USD/CAD is positioned at approximately 1.3767, indicating a fifth consecutive day of decline. The USD/CAD pair continues to fall as robust Canadian Retail Sales and a general weakness in the USD support the Loonie. The US Dollar continues to face pressure due to uncertainties surrounding policy and concerns regarding the independence of the Federal Reserve. Attention turns to US PMI data, University of Michigan sentiment, and the upcoming meetings of the Bank of Canada and the Federal Reserve next week.
Statistics Canada reported that Retail Sales increased by 1.3% MoM in November, surpassing market expectations of 1.2% and showing a significant recovery from October’s 0.3% decrease. Retail Sales excluding autos demonstrated notable strength, increasing by 1.7% month-over-month, surpassing the anticipated 1.2%, following a decline of 0.6% in October. The resurgence in retail activity reinforces the Bank of Canada’s cautious stance following the recent inflation data, which indicated a moderation in monthly price pressures, despite annual inflation continuing to hover above the BoC’s 2% target. In December, the CPI increased to 2.4% on a yearly basis, up from 2.2% in November, whereas the BoC’s core CPI measure experienced a slight decline to 2.8% from 2.9%. Market participants largely anticipate that the BoC will maintain its policy rate at 2.25% during the upcoming meeting next week. In the December policy statement, the BoC indicated that ‘if inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.’
The central bank emphasized that ‘uncertainty remains elevated’ and noted that if the outlook changes significantly, it is ‘prepared to respond.’ Stable oil prices provide additional backing for the Loonie, considering Canada’s position as a significant energy exporter. West Texas Intermediate trades around $61 per barrel, reflecting an increase of nearly 2.7% for the day. Meanwhile, the US Dollar is experiencing ongoing pressure, even with a slight reduction in US-EU trade tensions. President Trump’s protectionist trade policies and increasing interference with the Federal Reserve’s independence are contributing to a negative outlook among investors.
Preliminary S&P Global Purchasing Managers Index data indicated that the Manufacturing PMI increased to 51.9 in January from 51.8, falling short of expectations of 52.1. Meanwhile, the Services PMI remained at 52.5, unchanged from December, but also below the forecast of 52.8. As we look forward, market participants are keenly anticipating the upcoming release of the University of Michigan Consumer Sentiment survey, in addition to the data on inflation expectations. Markets are anticipating that the Fed will maintain interest rates at their current levels during the monetary policy meeting scheduled for January 27-28.