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Canadian dollar holds ground despite weak retail sales data

H.S. Borji
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Canadian dollar holds ground despite weak retail sales data

The Canadian dollar edged higher against its US counterpart on Tuesday, as the markets shrugged off a surprise fall in Canadian retail sales.

The loonie, as the Canadian dollar is known, climbed to an intraday high of 0.9102 US. It would subsequently consolidate at 0.9072 US, advancing 0.17 percent. The loonie was experiencing a broad consolidation trend after declining 100 pips on Monday.

The USDCAD pair declined 0.14 percent to 1.1026. The daily chart shows initial support situated at 1.0965. Initial resistance is likely found at 1.1084.

In economic data, Canadian retail sales declined unexpectedly in July following six consecutive monthly gains, Statistics Canada reported today in Ottawa.

Retail revenues declined 0.1 percent in July to $42.5 billion, following a 1.2 percent advance the previous month. Economists forecast an increase of 0.5 percent.

Retail sales excluding automobiles declined 0.6 percent, following a gain of 1.5 percent in June. Economists forecast no change for July.

In total, five of the 11 retail subsectors accounting for 55 percent of retail trade posted declines in July.

In volume terms, retail sales were unchanged.

The loonie’s rebound on Tuesday was part of a larger consolidation trend following an unexpected drop at the start of the week. Canada’s currency was on its heels Monday after Bank of Canada deputy Carolyn Wilkins said ultra-low interest rates would be needed for a longer time to support the recovery.

Speaking to an audience at the Toronto Region Board of Trade, Wilkins said “some degree of stimulus” is needed to keep the economy progressing and inflation on target.

The loonie fell from a Monday high of 0.9151 US to an intraday low of 0.9055 US. It would later close at 0.9057 US.

The BOC, which says it is keeping a hands-off approach regarding the local currency, is looking to exports to help drive the Canadian recovery. Central bankers said they were pleased with the pace of export growth in the second quarter, but maintained that more work would be needed to ensure a stable recovery.

Canada’s central bank has kept interest rates at 1 percent since September 2010. The BOC expects the economy to remain below capacity until the middle of 2016. The markets don’t expect a rate adjustment until at least the middle of next year.

Canada’s gross domestic product grew 0.8 percent in the June quarter, following a modest 0.2 percent advance in the first quarter. That translated into an annualized rate of 3.1 percent in the second quarter, well above the consensus estimate. That was the strongest quarterly gain since the third quarter of 2011, StatsCan said.

The outlook on the Canadian economy is improving in the second half of the year, as its neighbour to the south continues to gather momentum. The International Monetary Fund boosted Canada’s growth outlook last month, and now expects the Canadian economy to grow 2.3 percent this year, up from 2 percent growth in 2013. The international organization in January had forecast a growth rate of 2.2 percent in all of 2014.

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