USD/CAD rebounds from weekly lows on Fed speakers’ comments, despite soft US data

• USD/CAD is set to trim some of its weekly losses, with bulls eyeing 1.3400.
• US Retail Sales take a nosedive, plunging 1% MoM in March, while Industrial Production falls for the first time in 2023.
• Inflation expectations for one year in the United States soared 1%, from 3.6% to 4.6%.

The USD/CAD snaps four days of straight losses and bounces from weekly lows around 1.3300 early in the North American session. A tranche of US data flashes the economy is feeling the cumulative tightening by the US Federal Reserve (Fed) while Consumer Sentiment improved. The USD/CAD is trading at 1.3366, above its opening price.

US consumer sentiment improved, but inflation expectations rose

The Canadian Dollar (CAD) encountered headwinds like Fed’s official Christopher Waller saying that more tightening is needed amidst a solid labor market and stickier core inflation on the consumer and producer side. US Retail Sales disappointed analysts and plunged 1% MoM in March, compared to a 0.4% contraction. Annually-based data was 2.9%, below the prior’s month 5.9%.

At the same time, the Fed revealed that Industrial Production in March fell for the first time in 2023, expanding 0.4% MoM vs. estimates of 0.2%, and trailed February’s 0.9% data. Production output dropped due to a pullback in durable goods.

Lately, the University of Michigan (UoM) Consumer Sentiment poll showed an improvement in sentiment in April, up from 62 to 63.5, though inflation expectations for one year jumped 1% from 3.6% to 4.6%. That exacerbated a jump in US bond yields, with the 2-year recovering some ground, jumping 13 basis points, at 4.105%, and underpinning the US Dollar.

The US Dollar Index, a measure of the buck’s value against six currencies, is making a U-turn, up 0.48%, at 101.487.

Another Fed official, Chicago’s President Austan Golsbeenoted that he would focus on tighter credit conditions and lending data regarding his decision for the upcoming May 2-3 meeting. Golsbee added that although inflation is cooling, there is some “clear stickiness: in some price categories.

On the Canadian front, Statistics Canada revealed that manufacturing sales slid 3.6% in February, weighed by sales of petroleum and coal products. Expectations were for a 2.7% plunge, though the slippage in oil and coal products of 14.8% dragged the index lower.

USD/CAD Technical analysis

Given the backdrop, the USD/CAD found some bids before the weekend, though the upward correction toward the 200-day Exponential Moving Average (EMA) at 1.3377 could be short-lived. If USD/CAD buyers reclaim the 200-day EMA, that will expose 1.3400 and could shift the pair’s bias to neutral, with a daily close above the latter. Otherwise, USD/CAD sellers might step in and drag prices towards the YTD low at 1.3262, ahead of falling to 1.3200.

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