Choppy trading in USD/CAD will continue, but there is the potential for further support on any approach to the 1.2500 area.
USD/CAD hit resistance ahead of 1.2600 ahead of the US open on Tuesday with option expiries at the 1.2600 level helping to support the Canadian currency.
Headline Canadian retail sales data was slightly weaker than expected for June with a 0.1% headline gain compared with expectations of 0.3%. Sales were, however, dragged lower by falls in gasoline and motor vehicles with underlying sales registering a 0.7% monthly gain.
Markets reacted to the underlying data with the Canadian dollar strengthening sharply after the release as USD/CAD declined to the 1.2530 area from 1.2580 ahead of the release.
There was further choppy trading in oil prices with WTI dipping to lows below $47.40 p/b ahead of the US open before rebounding to above $48.00 and then retreating once again to below $47.80.
There were no major US data releases with a weaker than expected reading for June house prices offset by a robust reading for the Richmond Fed index.
US Treasuries moved slightly lower on the day with the 10-year yield edging above 2.20% which should provide some degree of US currency protection.
Overall, USD/CAD edged back above 1.2550 late in the European session as the US currency gained some wider backing.
US 10-year yields edged higher to 2.21% and overall yield spreads should provide some net protection to the US currency with USD/CAD support below 1.2550.
Oil prices will continue to be monitored closely with the API inventories data due for release after the US market close. Any surprise build in inventories would tend to undermine the Canadian dollar, although moves are likely to be limited.
USD/CAD 4-Hour Chart