USD/CAD Approaches 1.3600 as Canadian General Consumer Spending Weakens

• USD/CAD advances towards 1.3600 following sharp contraction in Canadian retail sales excluding autos.
• Canadian consumer spending on non-auto goods and services contracted at a pace of over 0.8%.
• The Dollar Index is expected to show volatile action following the release of preliminary S&P Global PMI data.

The pair USD/CAD is moving sharply towards resistance at the round 1.3600 level, as Statistics Canada reported mixed retail sales data for June. Consumer spending on non-auto goods and services contracted at a faster pace of 0.8% versus a 0.3% pace of contraction in May, while investors were forecasting a 0.3% expansion.

Overall, retail sales rose 0.1%, in line with the May reading, while market participants expected a flattening. Vulnerable consumer spending would allow the Bank of Canada to keep interest rates stable going forward.

S&P 500 futures generate decent gains in Europe, portraying a recovery in risk appetite among market participants. US stocks saw selling pressure on Tuesday as investors remained cautious about the Jackson Hole Symposium.

Investors are waiting for Federal Reserve (Fed) Chairman Jerome Powell to explain the benefits of keeping interest rates higher for a longer period. At the July policy meeting, Jerome Powell announced that further policy tightening would depend on the data.

Richmond Fed President Thomas Barkin stated that if inflation remains high and there are no signs of falling demand. The situation will force the need to tighten monetary policy.

The Dollar Index (DXY) resumes its bullish path after breaking out of the consolidation formed in a range of 103.00-103.67. The Dollar Index is gaining strength at a time when developing economies have been exposed to recession due to the gloomy economic outlook and rising interest rates. By contrast, the 10-year US Treasury yield fell below 4.3% as the Fed is less likely to raise interest rates further.

In the early hours of the New York session, investors will focus on preliminary US PMI data for August to be reported by S&P Global. The S&P Global Manufacturing PMI Index is likely to continue to improve and come in at 49.3 points. However, the services PMI is expected to fall to 52.2, from 52.3 in July. The composite PMI would remain unchanged at 52.0 in August.