Canadian Dollar recovers weak US industrial production data weighs on USD

Canadian Dollar recovers vs. the Greenback after ther release of US Industrial Production data shows surprise decline in output.
The release follows key macro data from both the US and Canada, including Canadian inflation.
Canadian inflation came out lower-than expected weighing on CAD initially.
Monday’s weak close reduces the technical bullishness of the reversal that started on Friday for USD/CAD.

The Canadian Dollar (CAD) recovers against the US Dollar (USD) on Tuesday, after the release of US Industrial Production data for June surprises to the downside and shows a continued shrinking of industrial output. The data follows lower-than-forecast Canadian inflation data for June, but also below-estimates US Retail Sales data. After much volatility, the Canadian Dollar has come out on top with USD/CAD trading over 0.15% lower.

The USD/CAD pair is exchanging hands in the 1.31s during the US session.

Canadian Dollar news and market movers

The Canadian Dollar rebounds against the US Dollar after the release of US Industrial Production data shows a 0.5% decline in June when a flat 0.0% had been estimated by economists. The result is the same as May and means industrial production has declined half a percent for two consecutive months (although it has risen 0.7% from a year ago), according to the Board of Governors of the Federal Reserve System. The poor data weighs on the US Dollar (bearish for USD/CAD).
The Canadian had been weakening against its US counterpart after earlier releases of Canadian Consumer Price Index (CPI) data and US Retail Sales data for June.
The CAD weakened after headline CPI in Canada registered a 2.8% rise in June, which was below the 3% forecast and the 3.4% registered in May. On a monthly basis inflation rose 0.1% from 0.3% forecast and 0.4% in May. Core CPI registered a 0.1% rise in the month of June, unchanged from May.
Bank of Canada (Boc) Core Canadian CPI (excluding volatile Food and Energy) came out at 3.2% YoY in June against the 3.5% estimated from 3.7% YoY in May. On a monthly basis, the measure showed a fall in prices of 0.1% when a 0.5% increase had been forecast by economists from the 0.4% seen in May.
The considerable decline in BoC core inflation is the main reason for CAD’s sell-off (bullish for USD/CAD) as it reduces the chances the Bank of Canada (BoC) will raise interest rates at its September meeting. Since higher interest rates are supportive for the local currency, because they attract greater inflows of foreign capital, the opposite is true of lower inflation.
US Retail Sales also dissapointed, however, coming out at 0.2% versus forecasts of 0.5% in June from 0.3% in May. Retail Sales Ex Autos showed a rise of 0.2% too, from 0.3% forecast. Only Retail Sales Control Group witnessed a higher-than-expected result, climbing 0.6% compared to the -0.3% decline expected.
The overall lower Retail Sales data suggests consumers in the US are starting to reign in their spending which will probably reduce inflation. This makes it less likely the US Federal Reserve (Fed) will have to raise interest rates considerably higher to bring inflation under control – especially given with the softer CPI and PPI data from last week. Overall this paints a picture of a US economy that is already cooling off.
Friday saw a strong reversal in USD/CAD on the back of a combination of weaker Crude Oil prices, which weighed on CAD, and much better-than-expected Michigan Consumer Sentiment data out of the US, which supported the US Dollar.

Canadian Dollar Technical Analysis: Monday’s weak close disappoints bulls

USD/CAD is in a long-term uptrend on the weekly chart, which began at the 2021 lows. Since October 2022, the exchange rate has been in a sideways consolidation within that uptrend. Given the old saying that ‘the trend is your friend’, however, the probabilities of an eventual continuation higher marginally favor longs over shorts.

USD/CAD appears to have completed a large measured move price pattern that began forming at the March highs. This pattern resembles a 3-wave ABC correction, in which the first and third waves are of a similar length (labeled waves A and C on the chart below).

US Dollar vs Canadian Dollar: Weekly Chart

A confluence of support situated in the upper 1.3000s, which is made up of several longer moving averages and a major trendline, prevented last week’s decline from extending any lower and provided a foundation for the reversal on Friday and Monday.