Summary:

• Canadian retail sales M/M: +0.1% vs +0.9% exp 
• Core reading M/M: +0.3% vs +0.9% exp
• USDCAD rises after holding key support at 1.2665

With the US celebrating a Bank holiday for thanksgiving the focus of this afternoon’s session is on Canada with a smaller than expected increase in retail sales seeing the Canadian dollar dip lower. There has been a strong rise observed in retail sales data since early 2015 but the latest disappointment is threatening to end the uptrend.

 The drop in Canadian retail sales is threatening to end the recent run of rises. Source: XTB Macrobond

Despite the drop, a steady rise in household expenditure should be seen as a positive sign for the Canadian economy. There has been a fairly good historical correlation between this and retail sales and as long as household expenditure holds up then retail sales shouldn’t decline too far. 

 Household expenditure remains robust despite the drop in retail sales. XTB Macrobond

A rise of 0.1% in M/M terms is well below the 0.9% expected and although the prior reading was revised up to -0.1% from -0.3% previously it is fairly safe to say the data point has disappointed a little.

The core reading was slightly stronger at +0.3% M/M but again, compared to the +0.9% expected this is also on the soft side. Again, however, the prior reading was revised higher to -0.4% from -0.7% previously. 

The reaction in the market has seen a swift drop in the Canadian dollar with USDCAD popping higher by around 35 pips in the half hour that followed the release. Longer term the pair broke below a rising trendline from the September lows yesterday and now 1.2665 is a potentially key support zone. 

 USDCAD has popped higher following the release but after breaking a rising trendline yesterday remains vulnerable to further declines. Source: xStation