USD/CAD rebounded from intraday lows on Friday, driven by weaker-than-expected Canadian Retail Sales data and a firmer US Dollar, which weighed on the Canadian Dollar (CAD) [1]. At the time of writing, USD/CAD was trading around 1.3735, up from an intraday low near 1.3699 [1]. The US Dollar Index (DXY) recovered to near 99.74 after falling about 1.10% on Thursday, further supporting the USD/CAD pair [1].
Statistics Canada reported that Retail Sales in Canada rose by 1.1% month-over-month in January, rebounding from a 0.4% decline in December, but missing the market expectation of 1.5% [1]. Retail Sales excluding Autos increased by 0.8%, also below the forecast of 1.2%, after being revised to 0.0% from 0.1% [1]. The softer-than-expected print suggests domestic demand was already losing momentum, raising concerns that rising energy costs could further weigh on consumption in the coming months [1].
Bank of Canada (BoC) Governor Tiff Macklem, following Wednesday’s monetary policy announcement, left the benchmark interest rate unchanged at 2.25% and stated it is too early to assess the full impact of the conflict in the Middle East on Canada’s economic growth [1]. He cautioned that elevated energy prices could squeeze household budgets, reducing income available for other spending, but also noted that sustained higher Oil prices could support income from energy exports, given Canada’s status as a net exporter of Oil [1].
Despite the surge in Oil prices following the US-Israel war with Iran, the Loonie has not received sustained support, as traders seek safety and liquidity in the US Dollar amid heightened geopolitical uncertainty [1]. Additionally, fading Federal Reserve (Fed) rate-cut bets have underpinned the Greenback, with the Fed keeping its benchmark interest rate unchanged at 3.50%–3.75% and revising inflation forecasts higher, though the dot plot still points to one rate cut in 2026 [1].
CONCLUSION
Weaker Canadian Retail Sales and a stronger US Dollar have pressured the Loonie, causing USD/CAD to rebound. Despite higher Oil prices, the Canadian Dollar has not benefited due to risk-off sentiment and geopolitical uncertainty. The market remains cautious, with concerns about domestic demand and the impact of elevated energy prices on Canadian households.