CAD/USD - After poor retail sales numbers, CAD now awaits CPI for further clues


The Canadian Dollar has slipped steadily over the past week, not just against a rebounding US Dollar. Yesterday morning, even before the latest retail sales numbers were released, USD/CAD moved on to a 1.27 ‘big figure’; a fresh high for 2018 and the best level since December 26th last year. After the data were published, CAD fell further, lifting USD/CAD to a high of 1.2740 though it has subsequently steadied just above 1.2700.

Stats Canada reported that after three consecutive monthly increases, retail sales decreased 0.8% in December. Sales fell in 6 of 11 subsectors, representing 42% of retail trade. Lower sales at general merchandise; health and personal care; and electronics and appliance stores more than offset gains at motor vehicle and parts dealers and food and beverage stores. Excluding motor vehicle and parts dealers, retail sales fell an even bigger -1.8%m/m. There’s no doubting that these numbers were considerably worse than the +0.2% m/m consensus, but retail sales were up 1.5% in the fourth quarter and up 6.7% for the year.

Local analysts said the disappointing reading put the economy on track for growth of about 2 percent in the fourth quarter, below the Bank of Canada’s 2.5 percent forecast. Statistics Canada will release fourth-quarter growth figures next week. The market-derived probability that the BoC will remain on hold at its March 7th meeting rose to 96%, though another rate hike is still fully priced in by July. There’s more economic data today with earnings, hours worked and the CPI numbers. The consensus expectation is that consumer prices jumped 0.5% in January, fuelled by the resurgence in energy prices although the annual rate will slip by a few ticks to 1.5% given base effects from last year. The Canadian Dollar opens in North America at USD/CAD1.2710, AUD/CAD0.9935 and GBP/CAD1.7715.


Intra-day movements across asset classes are becoming more volatile, less predictable, and often occurring with few obvious catalysts. Did Wednesday evening’s FOMC Minutes really warrant a 400 point drop in the Dow Jones Industrial Average? And if the answer is ‘yes’, then why did the same index rally 300 points the very next day on absolutely no fresh news or information? We may have to live with such swings for some time to come, and factor them into our decisions on when and how to execute our currency transactions; whether they be for hedging, investment or simply recreational cross-border expenditure such as vacations. From a best level yesterday of 89.85 - its highest in almost 10 days - the Dollar’s index against a basket of major currencies is down around three-tenths of a point today; a pretty decent performance given the equity market has regained all its post-FOMC Minutes losses.

St. Louis Federal Reserve President James Bullard on Thursday cautioned that investors may be "getting ahead of themselves" in anticipating four rate hikes from the central bank this year. Speaking with CNBC TV, Bullard said he doesn't see the case for a 1.2% increase in the Fed Funds rate this year, adding that "one hundred basis points in 2018 seems a lot to me." He also said there was a "ways to go" with respect to sustainable upward move on inflation and reiterated the view that US GDP will likely grow between 2.4% and 2.5% this year. Fed Governor Randal Quarles, meantime, gave a speech in Tokyo saying, “The U.S. economy appears to be performing very well and, certainly, is in the best shape that it has been in since the crisis and, by many metrics, since well before the crisis… With a strong labor market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized."

The US economic calendar is empty on Friday which might not be a bad thing given the volatility seen already in this holiday-shortened week. The USD index opens this morning in North America around 89.55; down almost three-tenths from Thursday’s high but still more than 1½ points up on where it was this time last week.

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