USD/CAD seems vulnerable below 1.3600 ahead of Canadian Retail Sales, Powell’s speech

• USD/CAD meets with a fresh supply on Friday amid dovish Fed-inspired USD selling bias.
• An uptick in oil prices underpins the Loonie and further contributes to the tone offered.
• Traders now look to Canadian Retail Sales data and Powell’s speech for a fresh impetus.

The USD/CAD pair struggles to capitalize on the previous day’s recovery from the 1.3570 area or the lowest level since April 10 and attracts fresh sellers during the Asian session on Friday. Spot prices slide back below the 1.3600 mark in the last hour and seem vulnerable to prolonging a well-established downtrend witnessed over the past three weeks or so. 

Thursday’s US Dollar (USD) recovery move from the YTD low runs out of steam rather quickly amid growing acceptance that the Federal Reserve (Fed) will begin its monetary policy easing cycle soon. The bets were reaffirmed by the annual benchmark review of employment data released on Wednesday, which indicated that the US job growth over the past year to March was significantly weaker than initially estimated. This, in turn, resurfaced fears about a potential recession in the world’s largest economy and fueled speculations about the possibility of a larger-than-normal, 50 basis points interest rate cut by the Fed in September. The dovish outlook puts some pressure on the US Treasury bond yields and the USD, which, in turn, is seen as a key factor dragging the USD/CAD pair lower. 

Meanwhile, expectations that an interest rate cut by the Fed will boost economic activity, and fuel demand, lend some support to Crude Oil prices. This, in turn, is seen underpinning the commodity-linked currency Loonie and contributing to the offered tone surrounding the USD/CAD pair. That said, market concerns about a slowdown in the US and China – the world’s two largest economies – and hopes for a ceasefire in Gaza keep a lid on any meaningful upside for Crude Oil prices. Traders might also refrain from placing aggressive USD bearish bets ahead of Fed Chair Jerome Powell’s speech, which will be looked upon for cues about the interest rate trajectory. 

Ahead of the key central bank event risk, the release of monthly Retail Sales data from Canada, along with Oil price dynamics, will influence the Canadian Dollar (CAD) and produce short-term trading opportunities. Nevertheless, the USD/CAD pair remains on track to register heavy losses for the third successive week. Moreover, this week’s breakdown below the very important 200-day Simple Moving Average (SMA) suggests that the path of least resistance for spot prices remains to the downside.