• Canadian headline inflation misses forecast at 1.5% and comes in at 1.4% in a year-over-year basis
  • Retail sales in July mixed but overall trends remain solid
  • Rises on USDCAD could be contained as more sellers could lurk

The Canadian headline inflation came in at 1.4% yoy against the forecast at 1.5% yoy in August while core measures proved to be better than previously across the board. There are three gauges of core inflation in Canada: common, trim and median and all of them exceeded their prior values, notice there are no forecasts as far as core CPI is concerned.

link do file download linkCanadian inflation seems to be getting back on an appropriate track. Source: Macrobond, XTB Research

Having looked at the chart above we could notice that both the headline CPI and the average of 3 core CPI measures continued their uptrend in the prior month. Keep in mind that the Canadian Statistics Bureau admitted last month that inflation had already passed the bottom. Even as there is still quite a long way to get the inflation objective placed at 2%, it seems to be the strong case to maintain the BoC on track with hike rates. Furthermore, it coincides with the Bank of Canada’s view that inflation was subdued mainly on the back of temporary factors. Having regard to quickly vanishing excess capacity one could assume that the monetary tightening cycle could continue. Let us recall that the Canadian central bank has hiked rates twice so far this year.

link do file download linkThe Canadian retail sales report was a bit obscure, the underlying trends were retained though. Source: Macrobond, XTB Research

The mixed data came from the consumption front as the headline reading of retail sales beat the forecast coming in at 0.4% mom vs 0.2% mom expected while the core one showed an increase by 0.2% mom against the consensus at 0.4% mom. What’s more, there was a downward revision of core retail sales for June from 0.7% mom to 0.4% mom. Even though a monthly basis seems to be not convincing, the underlying trends evaluated annually appears to be unfazed which bodes well for future consumption. Notice that the Canadian economy registered the highest economic growth in the second quarter among its G7 peers.

link do file download linkThe Canadian dollar has slipped slightly against its counterpart from the US but a move hasn’t been huge as of yet. Source: xStation5

Technically, the pair has jumped about 40 pips immediately after the release however the long-term trend is not at stake. The USDCAD is trying to near 1.2410 which is a notable resistance to watch for. If that level is broken, a leg higher could extend. Having said that, one could remember that the current levels on the USDCAD are fully justified by the bond market which is one of the few pairs where the greenback appears to be fairly valued.