USDCAD 10 mins

The Canadian dollar is in an interesting spot at the moment.

Domestically, real estate markets are clearly hurting and it's going to take at least 200 bps of rate cuts to fix it. But that's coming. The government is also extremely unpopular but a change is coming there too, in no more than 13 months.

In the meantime, the question is how well consumers and businesses hold up. Today's retail sales data shows they're doing surprisingly well. Sales in July rose 0.9% while the advance indicator for August rose 0.5%.

This suggests what while mortgage holders are struggling, those who have paid off homes or have large amounts of home equity are continuing to spend. What makes it a difficult number to trust is that RBC cardholder data has been deteriorating at a decent clip. The Canadian jobs market has also softened.

In any case, the market is taking it at face value for now and USD/CAD has sagged down to 1.3546 from 1.3567.

There is also the global growth picture to consider. The Fed's 50 basis point cut on Wednesday is a great sign for a soft landing and other central bankers are also cutting. That may mean we're in the early stages of

As I told Reuters yesterday:

"The market is buying the 'soft landing' outlook," said Adam Button, chief currency analyst at ForexLive, referring to a scenario in which inflation is tamed without a painful recession or large rise in unemployment. "A dovish stance from the Fed is a major tailwind for global growth."

On net, you have to be bullish that both the Canadian economy and global growth will hold up to be bullish on CAD. I'm not in that camp but the picture has certainly improved this week between the Fed at the latest data.