Canadian Dollar Recovers Despite Weak Retail Sales, Defies Dollar Strength
The Canadian Dollar (CAD) managed to defy market expectations on Friday, recovering from early-session weakness to close higher against the US Dollar (USD). Despite a notable miss in Canadian Retail Sales data for July, the Loonie climbed across the board, supported by technical resilience and broad investor appetite for risk-sensitive currencies.
The move placed the Canadian Dollar among the strongest-performing major currencies of the day, standing out against a stronger Greenback backdrop. Martin Hudson at LFtrade offers a structured and insightful breakdown of this matter.
Canadian Dollar finds footing after Retail Sales disappointment
Friday’s session began with a bearish tone for the Canadian Dollar after the release of disappointing Retail Sales figures. Headline Retail Sales dropped 0.8% in June, matching expectations, while Core Retail Sales slipped 1.2%, a steeper fall than the forecasted -0.7%. On the surface, the report added pressure to the Canadian economy, already facing slowing momentum as households adjust to restrictive monetary conditions and elevated borrowing costs.
However, a positive revision in earlier data gave CAD traders reason to temper pessimism. June core Retail Sales were revised higher to 2.2% month-over-month, compared with the previously reported 1.9%. This upward revision helped balance the weaker July print, offering a degree of support to Loonie sentiment.
Despite the negative headline, the Canadian Dollar staged a notable recovery. The currency closed the day 0.15% higher against the US Dollar, climbing 0.41% from bottom to top during intraday trading.
Loonie bucks the Greenback’s momentum
The performance of the Canadian Dollar stood out sharply against the broader US Dollar trend. The Greenback had been showing strength, bolstered by cautious positioning ahead of key US macroeconomic releases. Yet, the CAD managed to buck this trend, posting gains not only versus the USD but also against several other major currencies.
This divergence underlined that traders were willing to shrug off backward-looking Canadian data in favor of focusing on technical support levels and broader risk sentiment. With Canada’s domestic calendar thinning out, market attention is increasingly shifting toward upcoming US data releases, including PMI surveys, US GDP figures, and the PCE inflation index, which are expected to drive near-term USD/CAD flows.
Canadian Dollar breaks free and moves higher
The key to Friday’s bullish reversal was not rooted in fundamental surprises but in market positioning and technical resilience. The USD/CAD pair continued to test levels near its 50-day Exponential Moving Average (EMA) around 1.3785, an area that has provided critical short-term guidance for traders.
The intraday reversal highlighted growing impatience among Loonie bulls, who have been defending the downside despite weak domestic releases. The CAD found buyers near 1.3740, a level shaping into a potential triple-bottom demand zone.
As long as bids hold above this technical region, CAD momentum may continue to build, even in the absence of fresh domestic catalysts.
Technical picture: USD/CAD price action
From a charting perspective, the USD/CAD pair remains constrained by sideways consolidation near key levels. Despite Friday’s CAD gains, the pair is still trading within its recent range, capped near 1.3785 (50-day EMA) and supported by the 1.3740 demand zone.
The structure suggests a possible triple-bottom formation, which could either serve as a springboard for a bullish USD rebound or a launchpad for a deeper CAD recovery if bears manage to force a decisive breakdown.
Momentum indicators remain mixed, with the Relative Strength Index (RSI) hovering near neutral territory. Traders are likely to look for confirmation from next week’s US economic data before committing to a directional breakout.
Outlook: US data to take the spotlight
Looking ahead, the Canadian data docket is relatively thin, leaving the Loonie vulnerable to external forces. The upcoming US PMI surveys, second-quarter GDP growth figures, and the PCE inflation report will dominate trading flows in USD/CAD. These indicators will be critical in shaping expectations for the Federal Reserve’s monetary policy path.
If US data comes in hotter than expected, the Greenback could regain dominance, testing CAD resilience around support levels. Conversely, softer US numbers would enhance the Canadian Dollar’s ability to extend gains, particularly if technical buyers continue to defend the 1.3740 region.
Conclusion
The Canadian Dollar’s late-week rally was a testament to the currency’s underlying strength and technical resilience, even in the face of disappointing Retail Sales data. While July’s decline in consumer activity underscores challenges for the domestic economy, revisions to earlier data and a supportive technical backdrop allowed CAD to shrug off the immediate bearish impulse.
As USD/CAD consolidates near pivotal levels, the next phase of movement will be dictated by US macroeconomic data releases. Until then, the Loonie’s ability to buck the Greenback trend reinforces its position as one of the strongest performers heading into the final stretch of the week.
