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The Canadian dollar gained ground on Friday, sending USD/CAD lower by nearly half a percent, as dovish signals from Federal Reserve Chair Jerome Powell and upbeat Canadian retail sales data combined to pressure the greenback. The pair slipped 0.49% to 1.3835 in North American trading, retreating from an earlier daily high of 1.3924.
Powell’s Caution Fuels Rate Cut Bets
Speaking at the highly anticipated Jackson Hole Symposium, Powell acknowledged the Federal Reserve’s delicate balancing act, noting that “risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation.” While reiterating the Fed’s commitment to its dual mandate, he highlighted rising downside risks for the labor market and suggested that evolving conditions could justify a shift in policy stance.
Markets responded swiftly. Traders are now fully pricing in 50 basis points of easing by the end of 2025, with the probability of a September rate cut climbing from 75% to 90%. Powell stressed that the relative stability in unemployment figures still allows the Fed to “proceed carefully,” but investors clearly leaned toward a more accommodative outlook.
Canada’s Retail Data Strengthens the Loonie
The Canadian dollar found additional support from stronger-than-expected retail sales figures. June retail sales jumped 1.5% month-over-month, bouncing back sharply after a 1.2% contraction in May. Excluding autos, sales surged 1.9%, far exceeding the 1.1% forecast. The upbeat data reinforced the narrative of a resilient Canadian consumer, further bolstering the Loonie against its U.S. counterpart.
