By Will Peters

The Canadian Dollar (CAD) is the notable under-performer of the past 24 hours and the situation could become worse with key data ahead.

With a particularly week run being witnessed in the CAD sector over the past 24 hours we note things could yet get interesting.

Canadian data are front and centre today; we have December retail sales—likely to be poor (TD Securities think very poor) due to weather issues in the month. Consensus calls for a 0.4% drop in sales.

UPDATE: Bank of Canada Consumer Price Index Core (YoY) (Jan): 1.4% vs 1.3% expected. Bank of Canada Consumer Price Index Core (YoY) (Jan): 0.3% vs 0.1% expected.

Consumer Price Index (YoY) (Jan): 1.5% vs 1.3% expected.

In summary pro-CAD inflation data balanced out by neg-CAD retail sales.

However - retail sales have disappointed. Retail Sales (MoM) (Dec) -1.8% vs -0.4% expected.

Note that any improvement could witness a relief rally that could extend some way. Data is due at 13:30 GMT.

Ahead of the data, the Canadian dollar (CAD) exchange rate complex remains under pressure:

The CAD is the main under-performer on the session and is testing, or has cracked on through, some key levels on the crosses—the 1.0050 area versus the AUD and the mid-1.85s in GBPCAD.

We look for soft data to drive USDCAD to new cycle highs.

The broader trend up in USCAD is starting to look very, very strong again and while this has happened very quickly, analysts think it is hard to ignore. "Resistance is futile," says Shaun Osborne at TD Securities.

US dollar vs Canadian dollar rate continues to ascend

The uptrend in the USD/CAD exchange rate looks to be on track after a soft February, as noted by Luc Luyet at MIG Bank:

"USD/CAD continues to push higher, as can be seen by the break of the resistances at 1.1091 and 1.1123. A test of the key resistance at 1.1224

is expected. Hourly supports can now be found at 1.1093 (intraday low) and 1.1061.

"In the longer term, the decisive break of the major resistance at 1.0870 validates a multi-year basing formation whose minimum upside

potential is around 1.1910. A first resistance is given by the 50% retracement of the decline from the September 2009 peak at 1.3065 (around

1.1236)."

Shaun Osborne at TD Securities confirms the USD/CAD rally to be in place:

"We think the broader uptrend evident in the past few months is getting back on track now."

Why is the Canadian Dollar under pressure?

Osborne tells us the decline in the CAD is justified, "there’s a reason why the CAD has spent the last couple of months sliding lower and that is because the domestic economy is sluggish and the BoC is worried about weak inflation."

We get further reminders about these issues today—we expect poor readings from the retail sales report and no significant pick up in inflation (see forecasts detailed above).

Soft data today (and potentially with next Friday’s GDP data) will prompt speculation that the BoC policy message at the March 5th FAD will remain at least as dovish as last month’s when Governor Poloz underscored the bank’s growing concern about too low inflation.