CAD sinks following huge miss in data

Summary:

• Canadian retail sales plunged as sales on gasoline stations lagged

• Inflation pulled back from the vicinity of the upper limit of the inflation target range

• USDCAD erased early drop to trade in positive territory on the day

USDCAD reversed early losses following the release of the Canadian data pack. Significant miss in both retail sales and inflation figures allowed the pair to break above the short term resistance zone in a knee-jerk move. Outlook ahead of the BoC meeting next week did not change but guidance may change.

While the core retail sales gauge dropped significantly on the MoM basis it actually managed to bounce higher on the annual basis. Source: Macrobond, XTB Research

Let’s begin with the retail sales readings. The headline gauge was expected to show advance of 0.3% MoM inline with the previous reading (it was revised to 0.2% MoM today). The actual data saw a 0.1% MoM drop. The core gauge (excluding most volatile items) was viewed to experience 0.1% MoM advance but instead dropped 0.4% MoM (previous reading was revised lower from 0.9% MoM to 0.8% MoM). The gasoline stations sales were among biggest contributors to a drop. The biggest advance was seen in the car sales, especially sales of new cars, what explains significant difference between headline and core readings. On the annual basis the headline gauge showed 3.6% and the core gauge 3%.

Canadian inflation dropped significantly in September but it did so from elevated levels. Headline gauge still sits above the midrange of the inflation target. Source: Macrobond, XTB Research

Moving onto the inflation data one can see similarly or even more grim picture. Indeed, a slowdown was expected from 2.8% YoY to 2.7% YoY but the actual data saw a drop to as low as 2.2% YoY. The median core gauge was forecasted to remain intact at previous 2.1% YoY but eventually declined to 2%. Such an outcome suggests that a drop in the headline reading was mainly ascribed to the most volatility items like food or energy. Taking a look at the contribution table we can see that it was the case as the transportation prices (including gasoline) decline 2.1% MoM and food saw drop of 0.7% MoM in September. Prices of clothes bounced higher but it was not enough to offset drop in health care and recreation and in turn we saw core gauge move lower.

USDCAD reversed a drop following the release of lacklustre Canadian data pack. The pair managed to break above the short term resistance zone ranging 1.3050-1.3080 and may be set to storm a swing level in the vicinity of 1.3200 handle. Source: xStation5

Despite the data being clearly disappointing it is unlikely that it will change the attitude of the Canadian central bankers ahead of BoC meeting scheduled next week. The Bank is widely anticipated to follow into Fed’s footsteps and deliver a 25 bp rate hike. However, a deterioration in data may be recognized in BoC members public appearances and may alter guidance ahead of the next meetings.