Three things weighing on the loonie
USD/CAD is up more than a half-cent on Friday as a trio of reports undercut the Canadian dollar.
Early in Asia-Pacific trade, US Trade Representative Lighthizer said the US, Mexico and Canada are "nowhere close" to a NAFTA deal as time starts to run out. That was followed by reports that Trump called Trudeau about NAFTA and also spoke about Trudeau's trip to Boston and the joint North American FIFA World Cup bid. Could Trump have been telling Trudeau that he was frustrated by negotiations and prepared to go in a different direction?
USD/CAD rose on the NAFTA headlines but later recovered and was trading near 1.2795 when the retail sales and CPI data landed.
Both reports were negative for the loonie (positive for USD/CAD) and the pair jumped a full cent to 1.2890.
The main retail sales headline was strong but it was all about auto sales, which are volatile. When you strip out autos, sales were down 0.2% m/m compared to +0.5% expected. On inflation, CPI y/y was at 2.2% y/y compared to 2.3% y/y expected while core measures were in-line with estimates. Still, energy and food were the major short-term drivers while m/m inflation ex-food and energy was lower.
Coming into the day, the OIS market was pricing in a 42% chance of a Bank of Canada at the May 30 decision. That sounds about 42% too high for me.
If the US dollar continues to strengthen broadly, or even if it holds its ground, I expect this pair to track back up to 1.3000 but watch closely for any leaks or signals from the BOC. They won't like going into the May meeting with the market thinking it's a virtual coin flip.
There is talk of barriers at 1.2900 and there is technical resistance at this week's high of 1.2924.
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