Technical Bias: Bearish

Highlights:

• USDCAD reverses Wednesday’s losses, as the US dollar rebounds across the board.
• Canada set to release CPI and retail sales figures on Friday.

The US dollar roared back on Thursday, after a cautious Federal Reserve statement pushed up the Canadian dollar to two-week highs on Wednesday.

The USDCAD rallied to a high of 1.2765. It would subsequently consolidate at 1.2716, advancing 140 pips. The pair faces immediate support at 1.2397 and resistance at 1.2785.

The US dollar posted its biggest one-day drop in six years on Wednesday in the wake of mixed signals from the Fed about rate normalization. The USDCAD nearly reversed all of its losses on Thursday as investors turned their attention to Canadian data.

Statistics Canada will report on national CPI on Friday. Canadian CPI is forecast to rise 1 percent annually in February following an identical increase in January. So-called core inflation, which strips away goods such as food and gasoline, is forecast to rise 2.1 percent annually.

The Bank of Canada is predicting negative inflation from low oil prices, but says this won’t constitute deflation, which would require a decline in prices in most consumer categories. Inflation expectations remain “solidly anchored,” according to a BOC official, who only last month reassured the markets deflation would not impact the economy.

The BOC cut interest rates in January for the first time in more than four years, ensuring that slumping prices would not put a bigger dent in the Canadian economy. The BOC made no change to its key interest rate at the March policy meetings.

Separately, Canada’s statistics agency will report on January retail sales on Friday. Retail sales are forecast to drop 0.7 percent, following a 2 percent drop in December that was also the biggest in four years.

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