Retail sales in Canada unexpectedly fell 0.1% in July after holding flat the month prior amid economists' expectations of a 0.6% rise. The data adds further weight onto the single currency as inflation in the region slowed to 1.7% in August from 1.8% in July, while the core rate remained unchanged at 1.6% . In turn, expectations for a rate hike by the BoC scaled back, while the USD/CAD immediately rallied subsequent to the dismal report.
Taking a look at the breakdown of the report, home furnishings stores plunged 15.0% to lead the decline for the month, while general home merchandise stores added 2.4% to taper the decrease. Today’s fall in retail sales marks the fourth straight monthly drop as uncertainty in the markets lingers. The Bank of Canada interest rate decision is expected to be released on October 19. As of late, traders are pricing in a 36% chance that the central bank will hike borrowing costs 25 basis points, according to the credit Suisse overnight index swaps. This assumption of a rate hike is down from 43% yesterday and 50% last week.
Bank of Canada Rate Hike Expectations
Source: Bloomberg – Prepared by Michael Wright
USD/CAD Daily Chart
Source: Bloomberg – Prepared by Michael Wright
The USD/CAD looks to have pared its overnight decline but the exchange rate is currently at the crossroads of the 61.8 percent Fibonacci retracement. Thus, failure to break above this level may lead the pair to retest its current low. At the same time, our speculative sentiment index stands at 3.22 and signals for further losses.
