USD/CAD in tight range as Canada moves closer to deflation

on Sep 16, 2020
  • The USD/CAD pair is in a tight range as traders react to Canada's inflation and US retail sales data.
  • Data from Canada shows that consumer prices rose by just 0.1% in August.
  • In the United States, data from the Census Bureau showed that retail sales rose by just 0.6% in August.

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The USD/CAD pair was little changed today as traders reacted to the weak US retail sales and Canadian inflation data. Traders are also waiting for the Federal Reserve interest rate decision.

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US retail sales disappoint

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The US retail sales disappointed in August even as the country continued to reopen. According to the Census Bureau, retail sales jumped by 0.6% to $537.5 billion during the month. That was a lower rate than the previous month’s increase of 0.9%. Analysts polled by Reuters were expecting the sales to advance by 1.0%. On an annualised basis, the sales rose by 2.57%.

The core retail sales, which excludes the volatile food and energy, fell by 0.1% in August after rising by 0.7% in the previous month. That was also lower than the increase of 0.5% that analysts were expecting.

According to the bureau, nonstore retailers rose by 22.4% while clothing and accessories retailers declined by 20.4% in August.

Recent data have been relatively strong. Early this month, data by the Institute of Supply Management (ISM) and Markit showed that manufacturing and services PMIs remained above 50 in August. Another data showed that the country’s unemployment rate fell to 8.4% in the previous month. Meanwhile, the industrial production and inflation did well during the month.

The weakness in retail sales is possibly because of the crisis in Washington, where Democrats and Republicans have disagreed on stimulus. The $600 per week unemployment subsidy lapsed in July. It was then replaced by a $300 per week supplement through an executive order.

Meanwhile, the data came ahead of the Fed interest rate decision that will come out at 6PM GMT. Analysts expect that the bank will leave interest rates and quantitative easing policies unchanged. They also expect the Fed chair to put more pressure on lawmakers about another stimulus.

Canada inflation disappoints

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The USD/CAD pair is also reacting to the weak consumer inflation data from Canada. According to the Canadian statistics bureau, the headline consumer price index rose by 0.1% on a year on year basis. That was in line with the previous months increase. On a month-on-month basis, however, the CPI declined by 0.1%. The core CPI, which excludes food and energy, rose by 0.8% in August.

According to the bureau, prices rose in most categories. The price of personal care services rose by 7.2% while jewellery prices rose by 6.8%. There was also growth in the passenger vehicle prices. However, beef prices and gasoline prices declined in August.

The USD/CAD is also down slightly because of the higher crude oil prices. Brent and West Texas Intermediate (WTI) are up by almost three per cent today.

USD/CAD technical outlook

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The daily chart shows that the USD/CAD pair is little changed today. It is trading at 1.3180, which is in a range it has been for the past few days. The price is also along the 25-day moving average and slightly below the 50-day EMA. It is also above the descending channel that is shown in pink. With volume falling, I suspect the pair will re-enter the descending channel, ahead or after the FOMC decision.