USD/CAD nears unchanged on the day as risk trades bounce

USD/CAD rose as high as 1.4373 today but has trimmed that back by 40 pips and is closing in on unchanged on the day.

The pair rose after today's Canadian retail sales data, starting a 40-pip climb that's been now fully reversed. Mixed in with that move was a broader USD rally as stock markets were beaten up. As for the retail sales report, I'm not sold on the idea that it was a bad one and neither is CIBC, who highlighted that the 0.6% decline (vs -0.4% exp) came after a 2.6% gain in December.

"All told, the weakness in January and February appears to be a reversion to more trend-like activity and isn't a cause for concern," CIBC writes.

Notably, the advance estimate for February was -0.4% which isn't bad in light of all the tariff angst though clean reads are going to be tough with the HST holiday from Dec 15 to Feb 15 followed by the removal of the carbon tax on April 1.

CIBC:

Consumer spending was clearly improving in response to lower interest rates in H2 2024. And looking through the volatility shows a normalization in activity in Q1 following the start of the GST holiday. However, tariff uncertainty may inject caution into consumption ahead on concerns around employment prospects, depending on what the tariff outcome is on April 2nd. Consumption is therefore likely to slow over the first half of the year, but accelerate in H2 and 2026 if a worst-case tariff scenario is avoided.

As for the loonie, the rebound today was helped along by Trump saying he was 'flexible' on tariffs. Canada is one of the countries in the cross-hairs but Trump is finding few allies in his push to make it the 51st state. His talk of subsidies to Canadian industry is also bizarre given that the US runs a manufacturing surplus with Canada. The driver behind the US trade deficit with Canada is purely oil, which is sold south at a discount.

That said, Trump lieutenants have hinted at a fresh position on April 2 so there is some optimism the worst will be avoided. I can't imagine we get a move out of the 1.42-1.45 range until we get a clearer picture on that.