USD/CAD hovers above 1-week low ahead of Canada retail sales

The USD/CAD currency pair edged lower on Thursday ahead of Canadian retail sales data, which may provide further clues over the Bank of Canada’s rate trajectory, and after the FOMC meeting minutes revealed a cautious approach to rate cuts.

FOMC policy makers expressed concerns over the risks of reducing interest rates too early, the minutes of the Federal Reserve’s January 30th-31st policy meeting revealed.

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to navigate inflation back down to the Fed’s 2% objective, the minutes stated.

While “most participants noted the risks of moving too quickly to ease the stance of policy,” only “a couple … pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.”

Some policy makers saw a risk that progress on inflation could stall in case the US economy continued to demonstrate the strength it has already shown.

Markets are now pricing in about a 30% chance that the Federal Reserve could start cutting interest rates in May. That compared with a more than 80% chance priced a month earlier.

Meanwhile, CAD traders are now expecting Canada’s retail sales figures for December due out at 13:30 GMT today.

Retail sales probably rose at a monthly rate of 0.8% in December, according to market consensus, following a 0.2% drop in November.

Separate data this week showed Canada’s annual headline inflation had slowed considerably more than anticipated in January, to 2.9%, while reinforcing bets of an early interest rate cut by the Bank of Canada.

As of 11:39 GMT on Thursday the USD/CAD currency pair was edging down 0.35% to trade at 1.3458. Earlier in the session, the major Forex pair went down as low as 1.3441. The latter has been the pair’s weakest level since February 13th (1.3439).