Today, American trading platforms are closed - on the last Monday of May, Memorial Day is celebrated in the States. Therefore, at the start of the new week, dollar pairs show weak activity. However, there are exceptions here. For example, the USD/CAD pair declined by more than 50 points during the Asian session and at the start of the European session, continuing its southern path. The Canadian has been strengthening since last Wednesday after the buyers of the pair failed to overcome the resistance level of 1.2880 to enter the area of the 29th figure. After that, the price turned 180 degrees and dropped by almost 200 points. At the moment, USD/CAD bears are trying to gain a foothold already within the 26th figure.
The loonie is getting more expensive against the background of the growth of the oil market, as well as due to hawkish expectations regarding the further actions of the Bank of Canada. On Wednesday, June 1, the Canadian regulator will hold its next meeting, following which it should raise the interest rate by another 50 points. This is a widely announced event, but many experts are confident that the Canadian Central Bank will not stop there and announce further steps to tighten monetary policy. However, there are risks here, given the contradictory report on retail sales in Canada and the projected slowdown in GDP growth in the first quarter.
Thus, the total volume of retail sales in Canada in March did not change compared to the previous month. The March indicator came out at zero, while most experts predicted a fairly significant increase of 1.4%. In physical terms, total retail sales decreased by one percent. On the other hand, the core retail sales index (excluding car sales) immediately increased by 2.4%. This indicator has been growing for the second month in a row. Overall, growth was recorded in 10 of the 11 subsectors, but weak car sales offset the positive dynamics in other areas.
It is also worth noting that the day before the June meeting of the Bank of Canada (i.e. May 31), key data on the growth of the Canadian economy will be published. Here, most analysts predict negative dynamics. After February's growth to 1.1% (in monthly terms), a more modest growth of 0.5% is expected in March. In quarterly terms, growth is also projected to slow down: in the first quarter of this year, GDP should increase by 5.4%, while in the fourth quarter of last year, the indicator increased by 6.7%.
However, despite the projected slowdown in the growth of the Canadian economy, the Bank of Canada is unlikely to adjust its plans for further tightening of monetary policy. Inflation indicators are still showing positive dynamics, so at this stage, the regulator is likely to focus on this aspect. Let me remind you that according to the latest data, the growth rate of annual inflation in Canada has accelerated again: the April consumer price index jumped to 6.8%. As for the base CPI, this indicator came out in the same way in the "green zone" on an annualized basis, ending up at 5.7% (with growth forecast to 5.4%). Also, USD/CAD bears were pleased with another inflation indicator - the Canadian producer price index. This indicator increased by 0.8% with a forecast of growth up to 0.5%.
The loonie's ally is also the oil market. Brent crude is trading around $ 116 per barrel (WTI - $115), on rumors of an embargo on Russian resources. Many experts do not consider the $ 120 mark to be the limit. Last Friday, many media outlets, citing Bank of America, reported that in the event of a sharp reduction in Russian oil exports, Brent could rise "significantly above" the $ 150 per barrel mark. This morning, it became known that all sanctions against pipeline oil have been removed from the new version of the European embargo against Russia. But at the same time, the sea transportation of "black gold" is likely to be blocked.
The US dollar, in turn, at the start of a new trading week, again loses its position due to increased risk appetite. This was facilitated, in particular, by good news from China regarding the weakening of quarantine measures to combat coronavirus. The authorities of the 25 million-strong Shanghai announced yesterday that restrictions for enterprises will be lifted from the first day of summer, while Beijing has already resumed the work of part of public transport and some shopping centers that were previously closed for quarantine. In addition, the market is waiting for the verdict of the White House regarding the easing of trade restrictions for China. If the supporters of this decision convince the US president to take this step, the pressure on the dollar will increase due to the growth of risk sentiment in the foreign exchange market. So far, the Biden administration remains intrigued on this issue.
Thus, in the medium term, short positions on the USD/CAD pair are in priority. The price is currently located between the middle and lower lines of the Bollinger Bands indicator on the daily chart. The nearest southern target is 1.2650, which corresponds to the upper boundary of the Kumo cloud and the middle line of the Bollinger Bands (on the D1 timeframe). A more ambitious goal is 100 points lower, at 1.2550 - this is the lower limit of the Kumo cloud. However, the achievement of this target will depend on the "degree of hawkishness" of the Canadian regulator, which will announce its decision the day after tomorrow.
