- A combination of factors dragged USD/CAD to over a one-week low on Wednesday.
- An uptick in crude oil prices, stronger Canadian CPI reported benefitted the loonie.
- The risk-on impulse, dismal US Retail Sales data undermined the safe-haven USD.
- The focus remains glued to the highly-anticipated FOMC monetary policy meeting.
The USD/CAD pair continued losing ground through the early North American session and dropped to a one-and-half-week low, around the 1.2685 area following the release of Canadian/US macro data.
The pair witnessed heavy selling for the second successive day on Wednesday and has now retreated nearly 200 pips from the overnight swing high, around the 1.2870 region. The downfall was sponsored by a broad-based US dollar weakness and an uptick in crude oil prices, which tend to benefit the commodity-linked loonie.
Hopes for a diplomatic solution to end the war in Ukraine, along with the Chinese government’s promise to support stability in the stock market, boosted investors’ confidence. This was evident from a strong rally in the global equity markets, which drove flows away from traditional safe-haven assets and weighed on the greenback.
The USD bulls failed to gain any respite from softer-than-expected US monthly Retail Sales data, which showed a plunge in consumer spending during February. In fact, the headline sales recorded a modest 0.3% growth during the reported month, marking a sharp deceleration from the previous month’s upwardly revised reading of 4.9%.
Adding to this, sales excluding autos also missed expectations and rose just 0.2% in February as against the 4.4% surge recorded in the previous month (revised higher from 3.3% reported earlier). The data did little to ease the bearish pressure surrounding the buck, though elevated US Treasury bond yields helped limit losses.
Conversely, the Canadian dollar drew support from strong domestic consumer inflation figures. In fact, the headline CPI edged higher to 1% in February and the yearly rate accelerated to 5.7% from the 5.1% previous. More importantly, the Bank of Canada’s Core CPI, which excludes volatile food and energy prices, shot to a 4.8% YoY rate.
With the key economic releases out of the way, the market focus shifts back to the outcome of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision later during the US session, which will influence the USD demand. This, along with oil price dynamics, should provide a fresh impetus to the USD/CAD pair.