The Bank of Canada might delay interest rate cuts.

The Canadian dollar weakened past 1.37 CAD per USD, pressured by the strengthening US dollar, as investors assess Canada's latest inflation data to predict the Bank of Canada's interest rate decisions. Meanwhile, the US dollar gained support from stable retail sales.

Canadian retail sales are expected to drop by 0.3% from the previous month in June, marking the second consecutive monthly decline and the steepest drop in a year. This decline aligns with the previous year's retail volume decrease, with reports indicating sales drops in 8 out of 9 major product groups, particularly in building materials, food, and beverages. This suggests that households might be cutting non-essential spending due to higher borrowing costs and increased prices compared to earlier in the year.

Foreign investors increased their investments in Canadian securities by over CAD 20.89 billion, continuing a three-month upward trend. Most of these investments were in Canadian government bonds and stable private sector bonds, totaling CAD 19.6 billion, the largest bond investment since 2022. Conversely, domestic investors reduced their investments in the Canadian stock market by over CAD 9.5 billion, impacted by mergers and secondary market sales.

Canada's inflation rate fell to 2.7% year-over-year in June, a more significant drop than expected, suggesting that inflation might be on a downward trend again. This decrease aligns with the Bank of Canada's forecast that inflation would hover around 3% in the first half of the year and decline towards the end of the year and into early 2025.

The yield on 10-year Canadian government bonds fell to 3.4% in July, in line with the drop in US Treasury yields. This followed comments from Fed Chair Jerome Powell that inflation could certainly fall to the central bank's target range. Key factors affecting inflation include slightly lower oil prices compared to previous months and a cooling labor market, supporting a greater likelihood of reduced inflation. Investors predict that the US Federal Reserve will cut interest rates in September, but remain uncertain whether the Bank of Canada will also reduce rates next week.

Techical analysis data (5H)

Resistance: 1.3731, 1.3738, 1.375

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 1.37 - 1.3712 but cannot break the support at 1.3712, you may set a TP at approximately 1.3738 and SL at around 1.3694 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 1.3731 - 1.3738, you may set a TP at approximately 1.375 and SL at around 1.37 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 1.3731 - 1.3738 but cannot break the resistance at 1.3731, you may set a TP at approximately 1.37 and SL at around 1.375 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 1.37 - 1.3712, you may set a TP at approximately 1.3694 and SL at around 1.3738 or according to your acceptable risk.

Pivot point July 19, 2024 09:02 PM. GMT+7