Will the USDCAD climb higher thanks to Canadian Retail Sales?

While the Bank of Canada rate decision on Wednesday left rates unchanged at 1.75%, the Canadian Dollar sold off sharply on a broad front.

The reason for that can be found in the dovish rhetoric in the BoC statement and the comments from BoC Governor Poloz stating that a rate cut was on the table, even though financial vulnerability concerns weighed against a cut.
As a result, swap markets started to price in a rate cut. Here expectation for the BoC March meeting went up from 6% to 27.5% and for the BoC meeting in April these speculations rose from 22% to 51%.

What was certainly also interesting was that BoC Governor Poloz had a quite big emphasis on data, particularly on consumer data. And with the Canadian Retail Sales number being due today at 1330 GMT, elevated volatility seems warranted.

Any disappointment similar to last month when Retails Sales data for October came in at -1.2% (MoM), compared to the expected 0.0%, could trigger an acceleration of the current bullish move in the USDCAD on the upside and bringing the overall target around 1.3300/50 into our focus in the weeks to come.

On the other hand: any positive news is capable of resulting in a short-term bounce. But given the increasing likelihood of a rate cut from the BoC, we consider buying a dip against the region around 1.3050/3080 with the picture darkening only if we drop below 1.2950 to be interesting from a risk-reward perspective.

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