Canadian Dollar Rises as Retail Sales Slip

11/22/2022

1 minute read

2022.11.22 14:12

The Canadian dollar is in positive territory on Tuesday. In the North American session, is trading at 1.3400, down 0.39%.

Canada’s Retail Sales Decline

The Canadian consumer was not in a spending mood in September, as declined by 0.5%, following a 0.4% gain a month earlier. The forecast stood at -0.4%. fell by 0.7%, worse than the consensus of -0.4% and the prior reading of 0.5%. Despite the weak data, the Canadian dollar has managed to post gains today, thanks to a broad US dollar pullback.

The drop in retail sales will put a damper on expectations of a 50-basis point hike at the December meeting, as the Bank of Canada will likely deliver a modest 25-bp hike. Inflation, the bank’s number one priority, remains very high at 6.9%, as the BoC’s aggressive rate-hike cycle is yet to show results. The benchmark rate is currently at 3.75%, and like the Federal Reserve, there’s more life remaining in the current rate-tightening cycle. The BoC is closely monitoring employment and retail sales data, as strong numbers will make it easier for the bank to continue hiking as policy makers look for that elusive peak in inflation.

The recent US inflation report triggered a wave of exuberance, sending equity markets higher and the US dollar on a nasty slide. Investors became more confident that Fed was close to a pivot in its aggressive policy and risk sentiment soared. The Fed has pushed back hard, with Fed members delivering hawkish statements and projections, which has chilled risk appetite and stabilized the US dollar. Fed member Mary Daly weighed in on Monday, stating that inflation remained unacceptably high and projecting that the fed funds rate will peak at 4.75%-5.00%.