Retail Sales declined 0.6% in February, according to Statistics Canada, and that news did not give any support to the Canadian dollar. It wasn’t expected to. The consensus forecast looked for a -0.1% decline and although the headline number was worse than expected, Retail Sales, ex-autos was modestly better than expected. That took a little of the sting out of the disappointment, but USDCAD still inched higher.
The majors have been in a holding pattern since New York opened. President Trump is expected to announce his new tax reform measures. There is a real risk that markets get disappointed if the details remain vague leading to a US dollar sell-off.
The plan is rumored to include a cut in corporate tax rates to 15% and a 10% tax on foreign profits.
Source: Statistics Canada
A cut in the foreign profit tax rate could spike US dollar demand as US corporations take advantage of the favorable rates to repatriate profits.
EURUSD rallied in New York yesterday and in Asia overnight, after Reuters reported “sources” claimed the ECB would signal tapering in June reversed course ahead of the tax announcement. EURUSD dropped from 1.0948 to 1.0898 when New York opened.
Sterling mimicked EURUSD. GBPUSD dropped from 1.2842 to 1.2804 and then bounced back to 1.2825 at the New York open. Sterling is being driven by cross flows, Brexit concerns and US tax fears.
USDJPY crawled higher, rising from and Asia low of 110.98 to 111.50 in Europe. Then, EURJPY selling pushed USDJPY back to the mid-point of the range.
The Australian dollar popped to 0.7550 when Australia inflation data was released. Q1 CPI rose 0.5%, q/q, slightly less than the 0.6% that was forecast and unchanged from the previous reading. Traders weren’t impressed and AUDUSD fell to 0.7491, which is very close to the New York opening level.
NZDUSD slid to 0.6897 from 0.6954 on the back of broad US dollar strength and fears that Trump’s threat to the Canadian dairy industry would hurt Kiwi dairy farmers.
USDCAD Technical outlook:
The intraday USDCAD technicals are bullish while prices are above 1.3480 supported by the break above 1.3550. Tuesday’s break of the 2017 peak has put the spotlight on the 1.3850 level, which is the 50% Fibonacci retracement of the 2016 range. A break below 1.3540 would lead back to 1.3480 while a move above 1.3630 would extend gains to 1.3675 and then 1.3750. For today, USDCAD support is at 1.3550, 1.3510 and 1.3480. Resistance is at 1.3590 and 1.3630
Today’s Range 1.3550-1.3630
Chart: USDCAD daily with Fibonacci