USD/CAD steadies as traders digest mixed US Retail Sales data ahead of the Fed

• USD/CAD trades near 1.3575 as markets digest a mixed US Retail Sales ahead of Wednesday's Fed rate decision.
• Elevated Oil prices and geopolitical risks in the Middle East limit losses for the Canadian Dollar.
• USD/CAD remains in a descending wedge, while the Relative Strength Index signals a pause in bearish momentum.

The Canadian Dollar (CAD) is holding its ground against the US Dollar (USD) on Tuesday, with USD/CAD moving sideways near 1.3575.

Mixed signals from the latest US Retail Sales data and escalating tensions in the Middle East on Tuesday continue to keep traders cautious as the Federal Reserve's (Fed) policy meeting looms.

The pair is struggling to find direction after falling to an eight-month low on Monday, with markets shifting their focus toward the upcoming Federal Open Market Committee (FOMC) decision and any new headlines emerging from the Persian Gulf. 

While Oil prices remain elevated, supporting the CAD through its commodity link, recent US data and monetary policy signals stay front and center.

Retail Sales provide mixed signals on Consumer Spending trends

The release of US Retail Sales on Tuesday has provided a mixed picture. Headline figures declined by 0.9% in May, missing market expectations of a 0.7% decline and marking the steepest drop since early 2024. Sales excluding autos also fell by 0.3%, pointing to broad-based softness in consumer activity. 

However, the control group, which strips out volatile categories and feeds directly into the calculation of Gross Domestic Product (GDP), rose by 0.4%, indicating a strong rebound from April's -0.1% and a sign that core consumption remains resilient. 

For the Federal Reserve, the report presents a mixed picture. A decline in the headline number strengthens the case for keeping rates steady and possibly easing later in the year. However, the firm control group suggests that the economy is still resilient, reducing the urgency for rate cuts. 

From a broader perspective, the Israel-Iran conflict is intensifying, threatening the security of the Strait of Hormuz--a critical chokepoint for global Oil supply. 

Since the CAD is a commodity-linked currency, elevated Oil prices may help limit the downside for the Loonie.

In the near term, traders will closely monitor Oil price fluctuations tied to Middle East developments and parse signals from the Fed on Wednesday. These intersecting forces are likely to shape the path of USD/CAD into the latter half of the week.

USD/CAD technical levels

USD/CAD remains under sustained selling pressure, trading near 1.3580 and holding just above key trendline support. 

Prices have continued to respect the boundaries of a descending channel, with the 10-day (1.3644), 20-day (1.3713), and 50-day (1.3819) Simple Moving Averages (SMA) sitting above the current level.

The pair briefly tested the lower bound of the channel near 1.3540, but has yet to decisively break below it. 

A close beneath this level could open the door toward the November 2024 low of 1.3419. Meanwhile, the Relative Strength Index (RSI) hovers at 29 and is pointing higher, indicating that bullish momentum may be losing steam. 

If the US Dollar strengthens, this could risk a short-term consolidation or a technical rebound toward resistance at 1.3640-1.3710 in the near term.

USD/CAD daily chart