USDCAD, H1

USDCAD rallied to a better than one-month high of 1.3109 from near 1.3040 following the cooler Canada CPI numbers, and weak retail sales outcome. The pairing had faded to 1.3028 lows overnight on firmed Oil prices, but the data obviously trumped market sentiment.

Canada’s CPI grew at a 2.2% y/y pace in September, undershooting expectations for a modest dip (median +2.7%) following the 2.8% pace in August and cycle high 3.0% pace in July. CPI dropped 0.4% (m/m, nsa), contrary to expectations (median +0.1%) after the 0.1% decline in August. The Core CPI measures edged lower in September: CPI-trim to 2.1% from 2.2%, CPI-median to 2.0% following a 2.1% gain in and CPI-common to 1.9% from 2.0%.

Canada retail sales values dipped 0.1% in August after a revised 0.2% gain in July (was +0.3%). The retail sales ex-autos aggregate fell 0.4% in August following a revised 0.8% increase in July (was +0.9%). The declines in total and ex-autos retail sales were contrary to projections for at least modest gains in both. Total sales volumes declined 0.3% in August.

While CPI and retail sales were surprisingly soft relative to expectations, these report do not alter the strong case for a 25 bp rate hike from the Bank of Canada next week. The rapid slowing in total CPI growth back towards 2% y/y from 3% y/y realizes the BoC’s expectations that the pop higher to a 3% y/y CPI growth pace in July was due to temporary factors. The core CPI measures remain consistent with an economy operating around potential. Even if the data does not alter a rate hike for BoC, the inflation report supports the possible scenario to a gradual approach to normalising rates.

USDCAD

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

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