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USD / CAD – Canadian dollar squeezes higher.

– Canada Retail Sales ex-autos expected at -0.1% in November.

– Robust data pushing Fed rate cuts back.

– US dollar ending the week on firm ground.

USDCAD: open 1.3471-75, overnight range 1.3463-1.3503, close 1.3489, WTI $74.21, Gold, $2030.64

The Canadian dollar backed away from the brink due to profit-taking ahead of the weekend. The Loonie is the second-best performing major G-10 currency against the US dollar since Monday, as it lost only 0.42% compared to a 1.78% drop in the Swiss franc. The British pound performed modestly better than the Loonie, losing just 0.395%.

The US dollar gains are on the back of traders re-evaluating the odds that the FOMC cuts interest rates by 25 bps in March. Two weeks ago, the odds for such a move were close to 80%. Today, they are 54%. The change in heart is derived from a series of robust economic reports in January, which were underscored yesterday when weekly jobless claims fell by 13,000 to 187,000, a sixteen-month low.

The results reinforced the view that the US labor market is strong and reduced the need for the Fed to reduce interest rates. Bond traders boosted the yield on the US 10-year Treasury to 4.14%. It was 3.93% at the start of the year.

Canada retail sales data will only have a limited, if any, impact as it is the outlook for US interest rates that is driving USDCAD direction.

EURUSD traded in a 1.0868-1.0895 range, with the low occurring on the heels of weaker than expected German Producer Prices data in December (actual -1.2% m/m vs forecast -0.5%). Traders are content to bide their time with the ECB monetary policy meeting next Thursday.

GBPUSD was choppy in a 1.2665-1.2715 range but is holding up well in the face of a poor December retail sales report (actual -3.2% m/m vs forecast -0.5%). The drop was the worst since the Covid lockdown days of January 2021.

USDJPY dropped from 148.81 to 147.84, with caution ahead of Monday’s BoJ monetary policy meeting outweighing firmer US Treasury yields. Finance Minister Shunichi Suzuki nattered about how the government is watching FX moves closely, but no one cared.

AUDUSD edged higher, rising from 0.6565 to 0.6602, supported by US dollar profit-taking sales and slightly firmer commodity prices.

Today’s US data includes the Michigan Consumer Sentiment Index and existing home sales.

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