USD/CAD looks vulnerable below 1.3600 ahead of Canadian retail sales and Powell speech

• USD/CAD meets with fresh selling on Friday amid a dovish Fed-inspired USD selling bias.
• The rebound in oil prices is supporting the CAD and further contributing to the selling tone.
• Traders now look to Canadian retail sales data and Powell’s speech for fresh impetus.

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

The US Dollar (USD) recovery move on Thursday from the year-low is exhausting itself rather quickly amid growing acceptance that the Federal Reserve (Fed) will soon begin its monetary policy easing cycle. Bets were reaffirmed by the benchmark annual revision of employment data released on Wednesday, which indicated that US job growth over the past year through March was significantly weaker than initially estimated. This, in turn, resurfaced fears about a possible recession in the world’s largest economy and fueled speculations about the possibility of a larger-than-normal 50-basis-point interest rate cut by the Fed in September. The dovish outlook puts some pressure on 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 demand are offering some support to crude oil prices. This, in turn, is seen benefiting the commodity-linked currency, the CAD, and contributing to the selling tone around the USD/CAD pair. That said, market concerns over a slowdown in the US and China, the world’s two largest economies, and hopes for a ceasefire in Gaza are limiting any significant upside in crude oil prices. Traders could also refrain from placing aggressive bets against the USD ahead of Fed Chair Jerome Powell’s speech, which will be watched for clues on the interest rate path.

Ahead of the central bank’s key risk event, the release of Canada’s monthly retail sales data, 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 post sharp losses for the third consecutive week. Moreover, this week’s break below the all-important 200-day simple moving average (SMA) suggests that the path of least resistance for spot prices remains to the downside.