NAFTA comments and retail sales leave CAD searching for direction

Summary:

• Canadian retail sales miss forecasts but prior revised higher  

• US Treasury spokesman says major NAFTA issues outstanding

• USDCAD searching for direction but longer term could look vulnerable

The main economic data from Canada this week has done little to provide any real clarity for CAD traders, with NAFTA related comments just moments after further muddying the waters. The USDCAD first fell lower on the consumer spending figures before reversing and moving higher as news that the US still see big problems ahead for a NAFTA agreement and around an hour later price is still lacking a clear direction.

First off, let’s look at the data. Canadian retail sales M/M fell to -0.2% from 2.2% previously (revised higher from 2.0%), but this was broadly in line with consensus forecasts and therefore shouldn’t be viewed as too big a shock. Given that this is M/M data it’s not uncommon to see a strong print followed by a weak one (and vice versa) and seeing as the prior reading was the best since the March 2017 release it still seems to bode pretty well for consumer health.

Canadian retail sales have picked up of late but the divergence with the core reading could be seen as a possible warning sign that the overall picture of consumer spending remains far from strong. Source: XTB Macrobond

The core reading which doesn’t count auto sales fell to -0.1% M/M from 1.7% previously (revised higher from 1.4%) again meeting expectations. Similarly to how the contraction here appears negative, when taken in conjunction with the high previous print, which was also revised even higher and the forecast it could even be argued to be mildly positive for CAD.      

Just a matter of minutes after the data was released some trade related comments hit the wires and these nipped an initial move higher in CAD in the bud. The US Treasury has been quoted as saying that “major issues on NAFTA remain outstanding” and that there is no deal yet. While these aren’t huge by themselves they do serve as a timely reminder that trade issues with Canada’s largest trading remain and the currency is at the risk of any negative headlines on the issue.

USDCAD has broken below the Ichimoku cloud once more and this could be seen to signal that the longer term trend has turned lower. Whilst there have been false breaks previously these have normally occurred when the lagging line hasn’t confirmed the break and the move below the cloud of the lagging line could be seen as further supporting the move. Source: xStation