• Canada’s March inflation is expected to rise to 2.9%, potentially impacting a June rate cut.
• US retail sales beat forecasts, keeping the not-so-soon rate cut story.
• USD is buoyed by the Chinese authorities, allowing a lower yuan.

Good morning to all our readers!

Yesterday was dominated by US retail sales data; retail sales rose 0.7% during the month, higher than the forecast of 0.3%.

Consumption was supposed to be the Achilles heel of the US economy. Still, there is no sign of a downturn in this sector, which strongly supports the idea that the Fed will be in no hurry to cut rates. In addition, US two-year Treasury rates returned to about 5.00%, while the dollar extended recent gains.

The Day Ahead

One of the biggest events in the FX space today is Canada’s March inflation figures. The consensus forecasts a slight rise in headline CPI inflation to 2.9%.

The data may tip the scales even further in favour of the Bank of Canada cutting interest rates in June. The inflation outlook is already looking more promising than in the US. Therefore, the BoC could still cut in June unless there is a strong CPI print today or in April.

BoC’s interest rate, CPI, and GDP chart Source: Reuters

On the US front, today is a lighter day, with only housing starts and industrial production. Nevertheless, Fed Chair J. Powell and BoC Governor Tiff Macklem will also speak during a moderated Q&A session today.

What to Look For?

It is likely that some traders are finding it difficult to resist the dollar bull trend right now. Among the high inflation risks today, Chinese officials permitting a lower yuan may boost the dollar further.

As the dollar gained strength, the People’s Bank of China adjusted its daily reference rate to a weaker level, allowing the currency to depreciate.

Due to its lower sensitivity to risk-off swings and geopolitical turmoil, the Loonie can remain stronger in the short term.

USD/CAD Technical Analysis: Dollar Bulls Can Continue the Trend

On the 4-hour chart, the RSI is above 70, suggesting USD/CAD is overbought. The rally could, therefore, be limited at the CAD1.38 psychological level, which is the immediate resistance level for the pair now. However, the price trades above the 200-period SMA, suggesting an upside risk.

On the other hand, the pair’s immediate support lies at CAD1.3725. If the price breaks this level, it can dip towards CAD1.3700.

USD/CAD 4H Chart