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Weak CPI and Retail Sales Stop CAD in its Tracks

Published August 19, 2016
  • Overnight market action was subdued with the US dollar taking back some of its losses and crude giving back some of its gains following pronounced moves across commodities and the greenback over the last few days
  • The Canadian dollar has the spotlight on it today during the North American session as Canada reported July CPI data and Retail Sales data for June – both disappointed – while the US has nothing on the calendar to close out the week
  • All items CPI index for July fell a larger than the expected -0.2%, bringing the annualized pace to a mere 1.3% from 1.5% in June 
  • However, the Core reading (ex. energy/food/autos) came in on target at 0.0% compared with June and remained at 2.1% y/y
  • The CPI figures certainly aren't bullish for CAD or the Canadian economy and suggest that the Bank of Canada will be unable to entertain rate hikes any time soon
  • Retail Sales for June were also released today and those figures were much more disappointing, with sales falling -0.1% on a monthly basis compared with forecasts for a 0.5% increase
  • The report showed that receipts fell across seven of eleven subsectors and, if we strip out price changes and focus solely on volume, the amount of goods sold declined -0.3%
  • Furthermore, sales in May were revised downwards to zero growth from an initial gain of 0.2%
  • All in all, data is rather negative for the Loonie and we have seen a 0.7% climb in USDCAD following the release to the upper 1.2800's after hitting the mid 1.2700's yesterday, the lowest since July 5th
  • WTI's 24% rise in twelve trading sessions has likely been a huge factor on CAD; if that momentum in crude carries on then the dismal domestic data may be ignored by the market in the short term…but long term USDCAD looks to be great value here from a fundamental perspective
  • Canada has created only 77k jobs in the past 12 months, all part-time, and has posted a record trade deficit with the rest of the world…not a strong starting point with which to build a bullish case for the Loonie, so view this move lower in USDCAD as a trading opportunity that should be taken advantage of by those short USD in the future

Charts: (1) USDCAD back to range trading as uptrend broken – 1.2760 provided support yesterday, need to get above 1.2925 short term and 1.3000 medium term for bulls to take over.  (2) Oil rally resilient despite getting a little long in the tooth.  (3) Economic Calendar.