• Canadian core retail sales unexpectedly fall in March
  • Inflation metrics remain broadly inline with prior
  • CAD falls lower with USDCAD surging over 100 pips

The final economic release of note for the week has caused a significant market reaction in the Canadian dollar, which has dropped sharply lower. The headline retail sales for March showed a higher than expected print with the M/M coming in at 0.6% against 0.3% expected, with the prior also revised higher to 0.5%. But this is a bit of a misleading data point, with the core number a big disappointment and outweighing the beat in the headline. The core M/M dropped to -0.2% from 0.0% previously and seeing as this was expected to bounce sharply higher to 0.5% it is a worrying development and means that 3 of the last 4 core readings have missed forecasts. 

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 Canadian retail sales remain a concern, and whilst the Y/Y rose the M/M core reading missed forecasts badly. Source: XTB Macrobond

At the same time as the retail sales release, the most recent inflation data was out with the CPI in M/M terms coming in inline at 0.3% but the Y/Y reading showed a 0.1% fall to 2.2%. Similar to retail sales, traders often look through the headline reading here and focus on a core reading, which comes in the form of 3 different data points. The Core common (1.9% vs 1.9% prior) and core median (2.1% vs 2.1% prior) were both unchanged but the core trimmed showed a slight gain to 2.1% from 2.0% prior. 

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 Headline CPI Y/Y fell lower and while the core reading edged up the increase was no more than expected. Source: XTB Macrobond 

In terms of market reaction it has been pretty clear, with the Canadian dollar dropping sharply across the board.The USDCAD has rallied over 100 pips since the release, in less than an hour as traders have scrambled to buy the cross in reaction to the data. 

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 USDCAD has made a sharp move higher after the data was released, moving nearly a point to trade back near 1.29. Source: xStation

The weekly price action in USDCAD has been pretty mixed with a push higher on Tuesday being met with a swift rejection the next day. Price has been oscillating around the 8 and 21 day EMS which have converged to the point of touching. This meant that a bearish cross was on the verge of printing but today’s significant rise could well see them remain in a positive orientation (8 above 21) and signal an uptrend remains in tact. Potential resistance lies at the weekly high of 1.2926, last week’s high around 1.2995 and if the market can get there the 2018 peak of 1.3125. 

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 USDCAD has made a decisive push higher and with the 8 and 21 EMAs remaining in a bullish orientation the uptrend remains intact. Source: xStation