Canadian Dollar: Retail Sales Fail to Provide Lasting Boost, Will CPI Do The Trick?

The Australian Dollar, New Zealand Dollar, and Canadian Dollar all ended the day very little changed against the greenback, as commodity prices barely budged.

However, the Canadian Dollar did see a noticeable early-morning rally as retail sales excluding autos surged 1.4 percent, which was much stronger than expected. Looking at a breakdown of the report, though, it is clear that high commodity prices have had an impact since the index is not adjusted for inflation. Indeed, the gas station and food/beverage components showed the sharpest gains at 4.2 percent and 1.3 percent, respectively. While the news is relatively encouraging for the Canadian economy, it says little about current and future conditions as the retail sales report is lagging. Furthermore, with the Canadian labor markets weakening and consumer prices picking up, there is reason to believe that consumption growth will not be quite as robust going forward. Speaking of prices, the release of Canadian inflation data for the month of July is likely to remind the markets that the Bank of Canada has been somewhat hawkish in their rhetoric lately. Headline CPI is forecasted to rise to an annualized rate of 3.4 percent – the highest since March 2003 – while the BOC’s core measure is expected to edge up to a 8-month high of 1.6 percent. The Canadian Dollar is likely to respond immediately as the currency is particularly sensitive to this indicator.