Canadian Dollar Outlook: USD/CAD Rebound Dicated By Retail Sales Data

ASIA-PACIFIC RECAP

Equity markets tumbled during the Asia-Pacific session as global bond markets continued to sell-off. Japan’s Nikkei 225 plunged 1.13% as the Bank of Japan stated that it would focus on buying ETFs from the TOPIX instead of the Nikkei. Policymakers also widened the band around the BoJ’s 10-year bond yield target from 0.2% to 0.25%.

Australia’s ASX 200 fell 0.43% on the back of disappointing retail sales data, while tense in-person talks between US and Chinese diplomats triggered a 1.2% sell-off in China’s CSI 300. In FX markets, AUDGBP, and CAD slipped marginally lower while the haven-associated USD and JPY held relatively steady. Crude oil prices rebound over 1% higher after topping 7.6% overnight.

Looking ahead, consumer confidence figures out of the UK headline the economic docket alongside retail sales figures out of Canada.

Canadian Dollar Outlook: USD/CAD Rebound Dicated by Retail Sales Data

DailyFX Economic Calendar

CRUDE OIL CORRECTION, SURGING YIELDS UNDERPINNING USD/CAD

The USD/CAD exchange rate rebounded robustly overnight, climbing 0.66% higher on the back of a sharp correction in crude oil prices and a surge in US Treasury yields. US 10-year Treasury yields surged above 1.70% for the first time since January of last year, while a fresh wave of coronavirus-enforced lockdowns in France stoked fears that global mobility may not rebound as quickly as expected, ultimately triggering a 7% collapse in crude oil prices.

However, these dynamics may only temporarily weigh on the Canadian Dollar in the short-term, given the expectation from market participants that the Bank of Canada may taper its Quantitative Easing measures at its monetary policy meeting in April, in response to extremely strong jobs data.

The nation’s unemployment rate fell 1.2% to 8.2% in February drastically exceeding consensus estimates, while the participation rate held firm at 64.7%. This overwhelming drop in joblessness comes in spite of the majority of the country still operating under the tightest restrictions seen since the inception of the pandemic, according to the Oxford Covid-19 Government Response Tracker.

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