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USD / CAD - Canadian Dollar feeling frisky

- US holiday will ensure a quiet trading session.

- German Ifo data proved to be a non-event for markets.

- US dollar opens modestly lower, except against JPY.

USDCAD: open 1.3659, overnight range 1.3657-1.3671, close 1.3677, WTI $78.16, Gold, $2343.52.

The Canadian dollar dodged a bullet on Friday. USDCAD had broken above the downtrend line from mid-April (1.3670), which suggested the currency pair was embarking on a new up-leg with a target of 1.4000. But that didn’t happen. The US dollar came under widespread selling pressure after the Michigan Consumer Inflation Expectations data was a tad lower than expected.

However, Friday’s Canadian Retail Sales data were weaker than expected, falling 0.2% in March compared to the forecast for flat. Retail Sales ex-autos fell 0.6% compared to the forecast for a 0.1% increase. The soft Retail Sales data and the dip in CPI earlier this week suggest that the Bank of Canada will cut rates on June 5. That view is expected to get reinforced on Friday if Canada’s March GDP is flat (February 0.2%) as expected. If so, Canadian dollar gains will be limited.

As usual, the end of the month is pretty busy. Thursday will see a slew of Eurozone data and US GDP. Month-end portfolio rebalancing flows will also be a factor for FX markets. Friday, Eurozone inflation and the key US PCE Price Index reports are released.

EURUSD traded in a 1.0843-68 range overnight in a quiet session due to UK markets being closed. The German ifo Business Climate Index in May stayed at 89.3 points while manufacturing improved a tad. ECB Chief Economist Philip Lane boosted rate cut expectations by saying, “The best way to frame the debate this year is that we still need to be restrictive all year long. But within the zone of restrictiveness, we can move down somewhat.”

GBPUSD drifted in a 1.2733-1.2758 range in an uninspiring session as domestic markets were closed. The GBPUSD uptrend is intact while prices are above 1.2705.

USDJPY traded like it did on Friday and seesawed in a 156.66-157.02 range. BoJ Deputy Governor Shinichi Uchida said, “While we still have a big challenge to anchor the inflation expectations to 2%, the end of our battle is in sight.” His comments were nothing new and FX traders ignored them.

AUDUSD traded with a modest bid and rose from 0.6620 in Asia to 0.6648 in NY. Traders are awaiting the Retail Sales report on Tuesday and inflation data on Wednesday.