The release of Canadian consumer spending data is likely to add to evidence suggesting that the Bank of Canada will leave rates unchanged going forward, and may even consider raising rates. Canadian retail sales are anticipated to jump 0.6 percent during the month of April, suggesting that consumption remains strong and will be a positive contributor to Q2 GDP.
What Are The Markets Facing?
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Bonds – 10-Year Canadian Government Bond Futures
Canadian government bonds have been steadily rising toward 117 over the past week or so, but if April retail sales can put forth evidence that the consumer may be able to sustain the Canadian economy, the contract could tumble below near-term support at 116.50 toward 116. Anything less than expected, however, may give traders all the evidence they need to start pricing in another rate cut and CGBs could target 117 once again.
FX – USD/CAD
USD/CAD continues to consolidate within a wide range of 0.9850 – 1.0350, but over the course of the past week, the pair has shown hesitance to break below near-term support at 1.0150. Nevertheless, according to Technical Strategist Jamie Saettele, the odds are in favor of a USD/CAD decline below 1.00 in the near-term (see his Daily Technical Report for more). Will upcoming Canadian event risk work in favor of this scenario? Possibly, as Canadian retail sales are expected to rebound upon release. This news would be coming on the tails of stronger-than-expected Canadian inflation data on Thursday, and would exacerbate concerns that a hawkish Bank of Canada may consider raising rates at some point this year. As a result, there is some potential that we could see USD/CAD break below near-term support at 1.0150 to target the 100 SMA at 1.0061, though sharp decline could take aim on parity. On the other hand, softer-than-expected retail sales could propel USD/CAD higher, as the data would suggest that conditions in the Canadian economy are far from buoyant.
Where will the Canadian dollar go next? Discuss the topic with other traders in the USD/CAD Forum.
Equities – S&P/TSX Composite Index
While most global stock markets have tumbled over the past few weeks, Canadian equities have held up as energy shares propel the S&P/TSX Composite Index higher. However, resistance at 15,100 proved solid as a drop in oil prices on Thursday weighed in the index down. Upcoming event risk includes the release of Canadian retail sales, which is expected to reflect a pick up in consumption. If the index rises in line with expectations, the S&P/TSX could recoup some of Thursday’s losses. On the other hand, weaker-than-expected retail sales could send Canadian shares dipping lower to test trendline support at 14,600.
Written by Terri Belkas, Currency Analyst for DailyFX.com
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