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Canadian Retail Sales Fall

James Boston
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Canadian Retail Sales Fall

A clearer picture of the strength in the consumer sector is emerging following the publication by Statistics Canada of July’s Retail Sales data. Month on month sales now stand at -0.1% contraction, this compares to 1.1% experienced in June and the market consensus estimate of 0.5%. The Core ex Autos number is now reading at -0.6% in comparison to the 1.5% expansion in June and a subdued estimate of a flat 0% growth reading today.

The senior deputy governor of the Bank of Canada (BoC), Carolyn Wilkins, has delivered a slightly pessimistic outlook for the Canadian economy, albeit a qualified one. The main theme of her comments were focused on the fact that the economy may require an extra boost from monetary stimulus in the future if growth targets are to be met. The deputy governor noted that the economy is facing ‘persistant headwinds’ and that even though everything was on the right track it may take slightly longer to get there.

The BoC’s key interest rate has not moved from it’s current 1% level for over four years, and until the comments by the new deputy governor this was seen as the natural neutral level for the economy. Speculation is now growing among economists that this 1% rate may be too high and that the neutral rate, the rate at which the economy can operate at full capacity, is potentially lower than both the current level and long term historical norms.

The governor of the Bank, Stephen Poloz, is known to be somewhat dovish and it is widely believed that the only thing preventing a rate cut over the past few month’s was the concern that it would add fuel to the already overheating housing market. It does however now appear that monetary easing is more a case of when than if.

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