USD CAD rises to new 11 year high on weak retail sales falling crude

USD/CAD broke out above a tight triangle pattern on Wednesday after a lower-than-expected reading on Canadian core retail sales combined with falling crude oil prices placed substantial pressure on the Canadian dollar. In the process of this pattern breakout, USD/CAD established a new 11-year intraday high at 1.3356, just slightly above the previous high of 1.3353 that was hit in late August.

Canadian core retail sales for July, which excludes the often volatile automobile sector, came out flat against prior expectations for a 0.4% increase. This pressure on the Canadian dollar was later exacerbated by a sharp drop in crude oil prices after the US Energy Information Administration released data showing an unexpected build in gasoline inventories in the US, despite a greater-than-expected decline in crude oil inventories.

The current upside breakout for USD/CAD occurs less than a week after a false downside break of the triangle pattern immediately followed the Fed’s decision to keep US interest rates unchanged. That US dollar pullback was short-lived, as the greenback spent the first half of this week recovering in a sharp rebound.

With the US dollar continuing to benefit from market expectations of an initial Fed rate hike sometime this year, and crude oil continuing to pressure the Canadian dollar as it suffers from persistent over-supply and under-demand concerns, the prospects for USD/CAD appear significantly bullish.

If the noted breakout above the triangle pattern sustains momentum, the immediate upside target continues to reside at the key 1.3400 resistance level. With any further follow-through to the upside, the next major upside objective is at the 1.3600 resistance level.