• USD/CAD climbs to its highest level since April 13 as stronger Canadian Retail Sales data fails to support the Loonie.
• The US Dollar continues to gain traction amid uncertainty surrounding ongoing US-Iran negotiations and hawkish Fed expectations.
• Fed Governor Christopher Waller says inflation will remain the key driver of future policy decisions.

The Canadian Dollar (CAD) remains on the defensive against the US Dollar (USD) on Friday as traders look past stronger Canadian Retail Sales figures and keep their attention on developments surrounding US-Iran negotiations. At the time of writing, USD/CAD is trading around 1.3818, its highest level since April 13.

Data released by Statistics Canada showed Retail Sales increased 0.9% MoM in March, up from 0.7% in February and beating market expectations of 0.6%, while Retail Sales excluding automobiles rose 1.4%, stronger than both the forecast and the prior reading.

The data does little to support the Canadian Dollar, as the US Dollar remains firmly bid while traders await more clarity on whether the United States and Iran can reach a deal as talks continue. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, remains near six-week highs around 99.36.

US Secretary of State Marco Rubio also struck a cautious tone, saying there has been “some progress” in talks with Iran, though he added, “I would not exaggerate it,” and stressed that “we’re not there yet.”

Still, cautious optimism surrounding the negotiations persists after a senior Iranian source told Reuters that “no deal has been reached yet, but gaps have narrowed.” As diplomatic efforts under Pakistani mediation continue, Oil prices remain below recent highs, adding further pressure on the commodity-linked Loonie given Canada’s status as a major crude exporter.

Adding to US Dollar support, the final reading of the University of Michigan’s Consumer Sentiment Index fell to 44.8 in May from 48.2 previously, while the Consumer Expectations Index declined to 44.1 from 48.5.

Meanwhile, the 1-year Consumer Inflation Expectations rose to 4.8% from 4.5%, while the 5-year inflation outlook climbed to 3.9% from 3.4%, signaling that consumers remain concerned about rising inflation pressures linked to elevated Oil prices.

Following the release of the data, US Treasury yields rebounded, with the benchmark 10-year yield snapping a two-day losing streak as traders increasingly bet that the Federal Reserve (Fed) may need to raise interest rates by the end of the year to contain rising inflation pressure.

Fed Governor Christopher Waller said on Friday that he does not think the central bank “should consider hikes in the near future,” adding that “the current position is to hold rates steady in the near term.” Waller also said that inflation will “be the driving force in policy decisions ahead.”