Canada: Retail sales likely to print 0.7% for March – TDS

Analysts at BBH suggest that Canadian consumer spending is expected to end the first quarter on a solid note with a forecasted 0.7% advance in March retail sales, which should provide momentum into Q2.

Key Quotes

“Auto dealers enjoyed a strong month and a possible rebound in used vehicle sales could provide further support to the headline print. We look for ex-auto sales to come in at a softer 0.4% m/m as another robust month for home sales boosts demand for furniture while a pickup in construction activity should lead to stronger sales of building materials. Lower gasoline prices will act as a modest headwind while lower consumer prices as a whole should leave volumes to outperform the nominal gain. Our forecast implies annualized quarterly growth near 5% for retail volumes in Q1, which points to another outsized gain for consumer spending.”

“Foreign Exchange

“The Canadian data releases this week pose asymmetric risks to CAD. The backdrop is challenging for CAD given the spike in risk aversion, underperformance of Canadian banks and collateral damage of any tweaks to NAFTA. This leaves CAD highly vulnerable to softer data, especially on the inflation side. The annual release is likely to get more market attention (especially if it looks unchanged at 1.7% ) so our downside call on the monthly might not generate much upside for USDCAD.”

“Meanwhile, we our call for a strong upside print on retail sales could help CAD consolidate into the weekend. Our 0.7% forecast translates into a 1.4-sigma upside surprises, which typically coincides with a 0.2% drop in USDCAD. This reflects the historical impact of the surprise magnitude in the first five minutes of trading following the release. The key level to watch for USDCAD near-term is 1.3575, which is needed to get broken to consider a go back at the 1.35 level. With this in mind, we think the greenback is likely to maintain a negative bias until the Comey testimony expected next Wednesday.”