Canada Data (8/22) – Inflation and Demand; USD/CAD Reaction

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Canada Data (8/22) - Inflation and Demand; USD/CAD Reaction

Today, Canada released inflation and retail sales data:

CAN CPI m/m July: -0.2%, Forecast: -0.1%, Previous: 0.1%
Core CPMI m/m July: -0.1%, Forecast: 0.1%, Previous: -0.1%

The CPI inflation growth on the year in July was slid to 2.1% after a 2.4% print for June.

cpi inflation CAN 8/22

(click to enlarge; source: tradingeconomics.com)

Inflation data has been soft in the past couple of months, and thus stopped a trend of rising inflation in 2014. The recent soft inflation data should not be alarming because the annual rate was at 2.1%, anchored around the Bank of Canada’s target of 2.0%. Still if we get one more month of negative inflation rate, there will be dovish implications on the BoC’s monetary policy stance.

CAN Retail Sales m/m (June): 1.1%, Forecast; 0.3%, Previous: 0.9% (revised up from 0.7%)
Core Retail Sales m/m (June): 1.5%, Forecast: 0.4%, Previous: 0.3% (revised up from 0.1%)

retail trade can 8/22

 

(click to enlarge, source: Statcan)

The annual rate of retail sales growth came in at 5.9% in June. Here’s a look at the retail sales growth rate on a y/y basis, showing steady growth in the past year:


CAN retail sales growth 8/22

(click to enlarge; source: tradingeconomics.com)

The strong June retail sales data reaffirms that Q2 was a strong quarter for Canada in terms of demand. The gains were broad based in terms of regions and categories, so demand looks solid and sustainable, despite a general slowdown in inflation in June.

July retail sales might not be as strong, especially with prices leveling off.

When we look at the USD/CAD, we can see that traders are indecisive after the data points. On one hand, the retail sales data was strong. But then it is for June. Inflation data for July, was soft, and is a more timely signal that there will be uncertainty entering Q3 in terms of monetary policy expectations.

USD/CAD 4H Chart 8/22
USDCAD 8/22 4h chart

(click to enlarge)

The mode in the medium-term is neutral-bullish. USD/CAD was neutral in August ranging between 1.0986 and 1.0876 or 1.0860. However, the prevailing trend was bullish, the moving averages and RSI still show bullish bias.

Bullish Scenario: Moreover, USD/CAD found support around 1.0925 during the 8/22 session. In the 4H chart, we can see that 1.0920 is the central pivot where the 100- and 50-period simple moving averages (SMAs) rested. So, if price can stay above this area, and the 4H RSI can stay above 40, the USD/CAD will be pressured toward 1.0986, with upside risk above that to be towards the 1.0150 highs from April.

A break below 1.0900 however might put the focus back toward the August lows around 1.0860, below which, a bearish outlook could develop.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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