Market Analysis

Oh Canada

Traders who look at the Canadian dollar (USDCAD, CADJPY, EURCAD) have a couple of interesting data points to focus on as the week draws to an end. What might they expect? At 1330GMT on Thursday, there will be the release of retail sales data for Canada for December while at the same time on Friday there will be the release of Canadian Consumer Price Index (CPI) data for January. In the case of the retail sales figure Canadian bank CIBC feels that “November sales have been chewing into holiday shopping that used to take place in December, something [that] seasonal adjustment hasn’t yet fully accounted for yet.” As a result the Canadian bank is looking for a “a soft retail print.” CIBC is looking for a 0.3 per cent fall in the month-on-month retail sales figure (ex-autos) in December compared to the 1.6 per cent rise that was seen in November. Canada’s Scotiabank isn’t taking such a dim view and is looking for that release to show a  0.3 per cent rise. But if the two Canadian banks have a differing approach to Thursday’s retails sales data, CIBC and Scotiabank both have the same views of Friday’s Canadian CPI data. Both are looking for a deceleration in headline CPI for January to a rise of 1.5 per cent year-on-year (y/y) after December’s 1.9 per cent y/y increase.

Both are forecasting a month-on-month (m/m) 0.5 per cent rise in non-seasonally adjusted CPI in January compared to the 0.4 per cent fall that was posted in December. Scotiabank feels that “headline CPI inflation is likely to decelerate in year-ago terms when January’s reading arrives on Friday but the experience with US CPI lends caution to the expectations.” Based on that traders may feel the risk is for an above-forecast figure although Scotiabank does point out that “base effects alone would drag headline inflation down from 1.9 per cent  y/y in December to just 1 per cent y/y in January” and “to overcome this and keep the headline flat would require a hefty 0.9 per cent lift in average seasonally unadjusted prices in January over December. That would be about triple the normal pace for January in the past five years but exactly what we got in January 2017.”  As for CIBC takes the view that “the annual rate on headline prices will slip by a few ticks to 1.5 per cent given echo effects from last year, but underlying inflation trends should still look decent in [the] CPI report.”  As for what all this might mean for the CAD, that will be for traders to decide.

Written by Neal Kimberley, External Currency Analyst.