- Canada publishes inflation and retail sales data simultaneously, and expectations are low.
- With no significant US indicator published at the same time, the stage is set for the Canadian Dollar.
- The BOC decision still looms large over the loonie and impacts the interpretation of the data.
Canada releases its inflation report for March and Retail Sales data for February on Friday at 12:30 GMT. In some cases, such double-feature figures offset each other with one beating expectations and the other falling short. With low expectations on both measures, there is a higher probability of a positive surprise.
The publications should also be taken in the context of the rate decision by the Bank of Canada. Governor Poloz and his colleagues left the interest rate unchanged at 1.25% and provided new insights about the economy. We can divide these insights into two, fitting the two data points on the docket.
Retail Sales and the moderation of the economy
The BOC noted that the "moderation" that Canada experienced in the second half of 2017 spilled into early 2018. They slashed the growth forecast to 1.3% annualized in Q1. One of the factors was the disappointing Retail Sales reports so far in this quarter.
The low expectations from the Bank of Canada are also reflected in economists' consensus: a gain of 0.3% in headline sales in February, repeating the outcome from January. Also, the reading for the Retail Sales ex-Autos (or core sales) carries expectations for 0.3% as well, coming after an increase of 0.9% beforehand.
A positive surprise would therefore not only beat the modest expectations but also contradict the BOC's forecast, thus serving as a positive shock for the Canadian Dollar.
Inflation and the BOC's satisfaction
Poloz and Senior Deputy Governor Carolyn Wilkins were pleased with the progress made on inflation and wages. The increases seen on both fronts in current months supported the pair. So, from the perspective of the BOC, expectations are relatively high, and there is more room for a shortfall. On the other hand, economists' expectations are not sky high. Headline Consumer Price Index YoY is expected to accelerate from 2.2% to 2.4% in March. This would match the same level as in the US.
However, the Core CPI is expected to remain unchanged at 1.5% YoY, and this is the figure that matters.
Double-feature
It is easier to trade the double dose of Canadian news if the everything is green or if everything is red. As explained above, the BOC's special touch makes a difference.
If Core CPI falls below the low expectations, it would also contradict the BOC and have a broader impact than a miss on the Retail Sales number. Nevertheless, with low expectations, there is more room to the upside. And as mentioned above, a beat on Retail Sales report will have a stronger effect than a miss yet again due to the central bank.
USD/CAD Technical Analysis - Bears in control
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The USD/CAD is trading in a clear downtrend. After flirting with the oversold territory, the pair is now above 30 on the RSI, indicating further falls. Momentum is also showing further drops and the pair is still holding below the 200-day Simple Moving Average as well as the 50-day SMA.
On the downside, the 1.2550, 1.2450, and 1.2250 are worth watching. Looking up, 1.2615, 1.2680, and 1.2760 are eyed.
More: USD/CAD still supported but a slide could turn into an avalanche — Confluence Detector
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