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Canadian Dollar Stumbles As Weak Data Fuels BOC Rate Cut

Oct, 21st 16:38

The Canadian dollar plunged to the lowest since mid-March against the U.S dollar after a batch of data that showed retail sales unexpectedly dropped in August while consumer prices accelerated at a slower-than-forecast pace last month.

The Loonie hit an intra-day low at 1.33500 per dollar and is on track for the biggest weekly loss in the last five months as data released by the Statistics Canada before the opening bell of the U.S session strengthened the case that Bank of Canada will soon cut its interest rate.

Canadian consumer prices were reported to rise 0.1% in September after two months of declines. However, the data was weaker than expectations of economists who forecast prices would increase 0.2% on the month. On a yearly basis, Canada’s CPI added 1.3%, missing forecast by 0.2% as weak food prices dragged the index lower.

The so-called core inflation which measures the change in the price of goods and services purchased by consumers, excluding the 8 most volatile items, added 0.2% on the month and ticked up 1.8% from the September 2015.

In a separate report by the Statistics Canada, retail sales were shown to fall 0.1% in August, marking a retreat for a third straight month. Market expectations were for a 0.3% gain. The drag were caused by lower sales of new and used cars and a decline in purchases at general merchandise stores. Excluding automobiles, retail sales were unchanged from the previous month.

The Loonie has been on a slide since Wednesday when the BOC decided to keep rates unchanged but signaled the possibility of more stimulus measures injected into the economy. Given the likelihood of the U.S Federal Reserve to raise rate by the end of this year, the pair USDCAD may surge higher due to the divergence of monetary policy between two central banks.

However, the movement of the Canadian dollar also hinges on the oil market. Investors are waiting for the next formal meeting between OPEC and non-OPEC producers to discuss about the details of the output cut plan. Specific quota for each oil producer is expected to be set in the meeting this November.


Fig: USDCAD D1 technical chart

USDCAD has come back to trade above the upwards slopping trendline connecting higher highs since September 07th. The pair breached below this support on September 13 and fell to as low as 1.30048 on Wednesday but soon reclaimed its strength. A major Fibonacci level has been challenged. The pair has surpassed the 38.2% retracement and my successfully break out of this level as RSI has soared to as high as 61.29.

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