The U.S. dollar gained strength against the Canadian dollar on Friday as weaker-than-expected Canadian retail sales data was seen as increasing the likelihood for another rate cut by the Bank of Canada.
The Canadian dollar weakened after official figures showed that domestic retail sales fell 2.0% in December, far worse than forecasts of a 0.3% decline and the biggest drop since April 2010.The drop in retail sales came as sales at gasoline stations fell 7.4% in December due to lower gas prices.
The report indicated that the steep fall in oil prices since the second half of 2014 is hurting consumer confidence. A number of Canadian energy firms have announced cutbacks to their capital expenditure programs and some have also begun to lay off staff.
Canada’s central bank cut interest rates by a quarter of a percentage point to 0.75% in a surprise move last month, in response in response to the sharp drop in oil prices.
Bank of Canada Governor Stephen Poloz said low oil prices would be negative for growth and underlying inflation when he announced the rate cut.
Weekly bias remains on the upside as 21 EMA converges 55 EMA on the 4hours charts with MACD oscillator showing fresh bullish signs which indicates a rally is about to commence. On the Daily charts, we can also see a bounce of price on the 21 EMA which signifies the bullish trend is still intact even though price kept consolidating. We might see a retest of 1.27968 on the medium term. However a break and close above 1.25631 resistance would bring further rise to 1.26962 resistance (Feb 11 2015 high) in the short term picture.
In the coming week, Tuesday’s testimony by Fed Chair Janet Yellen to the Senate Banking Committee will be closely watched for any indication on when U.S. interest rates may start to rise. Wednesday’s inflation report from the U.S. and Canada will also be in focus.