Summary:

• Canadian retail sales rose by less than expected in June
• However, the core reading surged to smash expectations
• Overall this has had a positive impact on CAD

The biggest economic release of the afternoon has shown that retail sales in Canada rose by 0.1% M/M in June. This was slightly less than the +0.2% expected and marked a large slowdown on the prior reading of 0.6%. 

However a closer look at the numbers reveals that a very strong core reading which has had a bigger impact on the market than the headline and seen the Canadian dollar rise in the minutes since the release. The rise in the ex food and energy component of 0.7% was a marked improvement given the prior reading of -0.1% and a consensus expectation for a print of 0.0%. 

 After a fairly prolonged slump both the retail sales ex food & energy and the CPI readings have improved of late in Canada. Source: Bloomberg

There does seem to be something of a propensity for large upside shocks in this number of late with 3 large positive surprises now seen in the core reading in the past 6 months. The March and June release showed increase of +1.7% and +1.5% respectively. 

In terms of market reaction traders appear to have focused on the core element more than the headline with the USDCAD pair tumbling through prior support at 1.2550 to trade at its lowest level since the start of the month. The higher than expected CPI release set the market moving lower and today’s number has given it a further push to the downside. 

 USDCAD has fallen after the release to trade at levels not seen since the start of the month. Source: xStation

Longer term the market remains in a downtrend and after a bounce seen in the week before last there could now be a retest of key support at 1.2410. The EMAs remain in a bearish orientation (8 below 21) on D1 and it will take a break above the recent high of 1.2770 before a sustained recovery can occur.

 USDCAD remains in a longer term downtrend with 1.2410 a key level of prior support. Source: xStation