USD/CAD: 3 reasons why the Canadian dollar is spiking today

By:
on Jul 21, 2020
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  • The USD/CAD pair dropped to the lowest level since June 11.
  • Investors are reacting to the upbeat May retail sales numbers, EU recovery fund, and higher crude oil prices.
  • Retail sales rose by 18.7% in May after falling by 26% in the previous month.

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The USD/CAD pair dropped sharply today as traders reacted to upbeat retail sales numbers from Canada, positive coronavirus vaccine news, and higher crude oil prices. The pair is trading at 1.3453, which is the lowest it has been since June 11.

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USD/CAD
USD/CAD drops on upbeat retail sales numbers

Canadian retail sales jump

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Canadians shopped more in May as the country started to reopen after the lockdown that was imposed in May. According to Statistics Canada, the country’s retail sales jumped by 18.7% to $41.8 billion in May after dropping by a whopping 26.4% in the previous month. Analysts polled by Reuters were expecting the sales to jump by 20%.

The core retail sales, which exclude the volatile food and energy products, rose by 10.6% in June. That was worse than the 12.0% that analysts were expecting but better than the 20.7% decline in the previous month. Still, retail sales are 20% below where they were in February before the lockdown.

The sales rose in 10 of the 11 sectors that the bureau tracks. Motor vehicle and parts were the biggest contributors to this growth. They grew by 66.3% in June to $8.5 billion. General merchandise rose by 20.4% while clothing and accessories rose by 92.6%.

The only lagging sector was food and beverage, whose sales fell by 2% after jumping by 23.2% before the lockdowns.

Crude oil pushes the Canadian dollar higher

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Higher crude oil prices pushed the USD/CAD lower because of the important role oil plays in the Canadian economy. Brent and West Texas Intermediate (WTI) prices rose by more than 2.7%. The two are trading at $44.50 and $42.05, respectively.

This growth is mostly because of the EU recovery funddeal that passed earlier today. EU presidents agreed to raise €750 billion in the market to fund growth. They reached this agreement after four days of intense negotiations.

It is also because of the latest vaccine-related news. Yesterday, a report by The Lancet said that a vaccine being developed by AstraZeneca and Oxford University had shown positive signs in early trials.

Therefore, analysts believe that the two events will help push crude oil price higher and the US dollar lower. These factors are positive for the Canadian dollar.

The upbeat retail sales came a week after the BOC delivered its interest rate decision. It also came two weeks after we received upbeat employment numbers from Canada.

USD/CAD technical outlook

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USD/CAD
USD/CAD technical outlook

The USD/CAD pair is trading at 1.3442, which is the lowest it has been since June 11. On the daily chart, the price is below the 50-day and 100-day exponential moving averages while the RSI has dropped to 40. It is also between the 78.6% and 61.8% Fibonacci retracement level. Therefore, the pair is likely to continue falling as bears target the next resistance at 1.3313.

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