The Loonie was the second-best performer of the major currencies after the British Pound last week. The Canadian Dollar rose on Friday when retail sales (sales at Canadian retail outlets) came in at -0.1 percent month-to-month in December when the expectation was for -0.3. Also, the softness of the US dollar expanded oil prices, which, at the same time, backed the Loonie.
The Loonie consolidated its gains when the USD/CAD pair fell 120 pips and when Bank of Canada Governor Stephen Poloz defended the five rate increases since mid-2017, citing two reasons why there has been a rate hold since October last year: the impact of higher rates on indebted consumers; and, risks to the investment outlook. Poloz said that they would need to move their policy rates up into a neutral range over time, but the BoC is “highly uncertain” about the timing due to lingering questions around housing and investments. Poloz continues saying that they will evaluate new economic data and use judgment, which adds to his efforts to inject more ambiguity. There is almost unanimity that at least one more increase is likely at some point this year. The next rate decision is March 6th.
Technically speaking, the USD/CAD pair has a very strong support at around 1.3125, which is part of the uptrend coming from February 2018. At the time of this writing, the USD/CAD is trading at 1.3150, which is a pivot point, and it infers a technical support of 1.3125 and a technical resistance of 1.3195 for today. The next key data release will be the CPI numbers, which will be released on Wednesday.