Heading into the Memorial Day long weekend down south, there is tempered optimism that a potential debt ceiling deal is starting to take shape, most likely because politicians prefer not to work on long weekends.
Initially, this news weakened the US dollar against riskier assets, such as the Canadian dollar. However, this effect was short-lived as more key US data emerged, showing a stronger-than-expected US consumer. According to the US Commerce Department, US consumer spending increased by a higher-than-expected 0.8% in April. In contrast, Canadian retail sales were down 1.4% in March.
This increase in US consumer spending supports the ‘higher for longer’ perspective on US interest rates and increases the likelihood of another 25 bps rate hike by the Federal Reserve at its next meeting in July. With the Fed expected to raise rates in July while the Bank of Canada is expected to keep its benchmark rate unchanged, the interest rate differential is once again favoring the US dollar.
The Canadian Dollar is currently trading at 1.3642 against the US dollar.