The dollar holds ground
The dollar was able to hold its ground on Friday after falling during the course of the week on the heels of both the withdrawal of Larry Summers as the next Chairman of the FOMC, along with the surprise decision by the Federal Reserve to hold off on any tapering of their bond purchase program. Minutes of the UK central bank released earlier in the week, reflected a hawkish tone as the MPC now believes that stimulus is no longer needed to increase UK growth potential.
Economic data in the UK was surprisingly soft, especially on the heels of the recent BOE minutes which showed the MPC was confident that stimulus was not longer needed to drive growth. Traders were caught off guard by the decline in retail sales which shows a -0.9% vs. consensus of a 0.4% rise and the largest decline since last October 2012.
The Canadian dollar has also been a strong currency in the face of the lack of tapering by the US Federal Reserve. Canada’s consumer price index rose less than expected, moving further away from the Bank of Canada’s 2% inflation target as consumers paid less for gasoline and vehicles. The monthly headline CPI was flat following a 0.1% increase in July, trimming the annual rate to a three-month low of 1.1% from 1.3% previously, according to Statistics Canada. Core inflation rate, which excludes food and energy costs, rose 0.2% on a monthly basis following no change in July, though the annual pace slowed to 1.3% from 1.4%.
The Canadian dollar reversed recent gains post the CPI report. Support is seen near a horizontal trend line at 1.0137, while resistance is seen near the 10-day moving average at 1.0310. Momentum is negative with the MACD (moving average convergence divergence) index printing in negative territory. The RSI is printing near 40 which is on the low end of the neutral range.
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