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 May, suggesting that consumption remains strong and will be a positive contributor to Q2 GDP.
What Are The Markets Facing?
Bonds – 10-Year Canadian Government Bond Futures
Canadian government bonds have pulled back from resistance at 119 in recent days, and if May 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 117.60 toward 117. Anything less than expected, however, may give traders all the evidence they need to start pricing in another rate cut and CGBs could target 119 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 the psychologically important parity mark, where we also have the 200 SMA. 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 rise upon release. This news will likely 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 to target a rising trendline near 0.9900. 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
Canadian equities have plummeted in recent weeks after the S&P/TSX formed a triple top near 15,100. However, the 61.8% fib of 11,986.85 – 15,158.73 at 13,198.51 has thus far served as decent support, as the index has climbed in over the past week. 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 continue climbing above the 13,500 level. On the other hand, weaker-than-expected retail sales could send Canadian shares dipping back down toward 13,200.
Written by Terri Belkas, Currency Analyst for DailyFX.com
Questions? Comments? E-mail tbelkas@dailyfx.com
