Canadian consumers stepped up their spending in August, and the details show genuine strength beneath the headline. Statistics Canada reported that retail sales rose 1.2% to $74.6 billion, with gains across all nine subsectors. Notably, sales volumes also increased 1.2%, meaning real buying activity stood behind the headline increase.

The strength extended beyond autos and gasoline. Core sales climbed 1.1%, reversing July's 0.7% decline, with food, general merchandise, and health and personal care retailers contributing. Gasoline was the exception to the volume story: receipts increased 1.7%, but volumes fell 0.5%, indicating that higher prices drove that gain.

A mixed macro backdrop

The report delivers some better news for the Canadian economy, but the broader data are still telling a mixed story. The increase in retail volumes is encouraging after real gross domestic product was unchanged in July, and it points to a stronger contribution from goods consumption in August — although retail spending is only one part of overall growth.

The employment picture is the concern. Canada lost 68,000 jobs in September, including 35,000 full-time positions, while the unemployment rate rose to 6.5% from 6.4%. It was the second consecutive monthly employment decline. Consumers have continued spending, but sustained job losses would make that strength harder to maintain. It is worth noting that the August retail figures predate September's employment decline, while the September spending estimate is still preliminary.

Inflation also warrants a look beneath the headline. September's Consumer Price Index rose 3.1% year over year, up from 3.0%, largely because of gasoline. Excluding gasoline, inflation slowed to 2.2% from 2.4%. Underlying measures eased as well: CPI-trim slipped to 1.8% from 1.9%, while CPI-median fell to 1.9% from 2.0%. These measures help filter out unusually large price changes, and both now sit below the Bank of Canada's 2% inflation target. The message is that higher energy costs are lifting headline inflation while broader price pressures have moderated.

For the Bank of Canada, the forces are competing: resilient spending, weaker employment, and softer underlying inflation despite the energy-driven headline increase. The Bank held its policy rate at 2.25% in September — well below the 4.0% the Federal Reserve set on September 16 — with its next decision and updated forecasts due October 28. Gaps of that kind between central bank policy rates are among the recurring inputs currency traders weigh alongside growth and inflation data. Today's retail figures could reduce the urgency to ease, but they do not erase the employment concerns. The normal currency bias from stronger spending would support the Canadian dollar and pressure USDCAD lower, although the mixed economic backdrop makes a sustained move less clear-cut.

Price action reinforces the downside bias

Stronger Canadian spending would normally support the Canadian dollar and push USDCAD lower — and that is exactly what is happening, with the technicals reinforcing the downside bias.

On the hourly chart, the price has fallen to a new session low at 1.3983, extending back below the natural support at 1.4000, a round-number level that tends to draw extra attention from traders. Earlier in the Asian-Pacific session, the pair dipped to 1.39963, but sellers could not sustain the break below 1.4000. The subsequent bounce carried the price back toward the 50% midpoint of the move up from the August 21 low at 1.40149, with the high reaching 1.4018 before rotating back to the downside.

Buyers had their shot above the midpoint and could not build on it. The reversal to fresh lows keeps sellers in control.

What comes next on the downside

The next downside target is an older swing area between 1.3948 and 1.3966 that originated back in late March. Sellers would first need to break below the upper boundary at 1.3966, opening the door for a test of 1.3948. The 61.8% retracement of the move up from the August low also sits near the lower boundary of that area — a Fibonacci-derived level technical traders commonly reference — adding to its importance as a potential support zone where buyers could lean and define their risk.

For context on that zone: on September 16, when the Federal Reserve raised rates to 4.0%, the price surged above the swing area. The rally ultimately carried USDCAD to a double top at 1.42984, reached on October 9 and October 14. A sustained break below 1.3948 and the nearby 61.8% retracement would hand sellers another technical victory and shift attention toward the 200-day moving average at 1.38814.

Seven consecutive lower closes?

Since the second peak last Wednesday, USDCAD has closed lower for six consecutive trading days. Yesterday's close was near 1.4005. If the pair stays below that level into today's close, the losing streak would extend to seven.

Sellers have the momentum. Now they need to keep breaking — and staying below — the next downside targets.

What would blunt the downside momentum

The first step for buyers would be a move back above the 50% midpoint at 1.40149. Getting above and staying above that level would take some of the immediate pressure off the pair.

Beyond that, buyers would need to work through two additional hurdles:

• 100-day moving average at 1.40432
• Falling 100-hour moving average at 1.4049

Those moving averages create an important resistance zone. A sustained move above both would disappoint sellers looking for more downside and give buyers a stronger technical foothold.

Until then, the failed bounce above the midpoint and the move to fresh lows keep sellers in control.