Dollar Dives, China GDP Next

The US dollar is getting increasingly skittish on signs that more than winter alone may not have cooled the economy. On the day, the Canadian dollar was the top performer on an oil rally ahead of the BOC while the US dollar lagged. The focus now shifts to China and a possible rate cut later with GDP data due.  In our latest Premium Insights, USDCAD, NZDUSD, EURGBP and EURAUD remain in progress.

Four times a charm? US retail sales disappointed expectations for the fourth consecutive month and it set off a surprisingly large round of US dollar selling. The dollar lost 150 pips against the pound, euro and CAD after the data, which showed a 0.9% rise compared to 1.1% expected.

The control group, which excludes autos, gas and building supplies, rose 0.3% compared to 0.5% expected along with a two-tick negative revision the prior. Alone, there wasn't anything in the report to spark significant economic worries but it may be a matter of the tide slowly turning against the US economy.

The idea that could weather stifled the economy in Q1 is omnipresent in economic conversations and treated like it's nearly as a fact but March isn't the coldest month and the numbers have been soft, leaving some traders skeptical. In addition, the dollar is a crowded trade and that led to an extra-large squeeze. After a soft non-farm payrolls report and a similar reaction, the US dollar recovered in the days ahead as the focus shifted to just how weak rival economies are faring.

Focus on oil in the day ahead. Prices moved higher late in the day on a smaller build in API supplies and talk of cutting OPEC supply from Iran. The technicals are the bigger story as prices approach a tough zone of resistance just above $54 that has held in four previous challenges. A squeeze higher in oil and a wait-and-see approach from the BOC could be a powerful combination for USD/CAD shorts.

But in the shorter term, all the talk with be about China with Q1 GDP due at 0200 GMT. The consensus is 7.0% but there is plenty of skepticism. Even the IMF forecast just 6.8% GDP growth in its latest forecast. March IP and retail sales are due at the same time.

Trade numbers this week were very soft and that may show a slowing economy in the bigger picture but that may be masked by a stronger trade surplus as imports tumble. There is talk that the PBOC could cut rates as soon as today if growth falters.