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Canadian Dollar on its Heels as Retail Sales Plummet

H.S. Borji
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The Canadian dollar edged lower against its US counterpart on Friday, as Canadian retail sales plunged at the fastest pace in more than four years, underscoring concerns about consumer confidence.

The loonie, as the Canadian dollar is known, declined 0.24 percent to 0.7982 US. The USDCAD exchange rate was trading at 1.2521 and faces initial resistance at 1.2564. A break above that level would lead to 1.2630 and 1.2705. On the downside, support is descending from 1.2423.

December marked the biggest slowdown in retail sales since April 2010, a sign consumers were reluctant to make big purchases during the holidays. Canadian retail sales declined 2 percent to $42.1 billion in December, after posting a 0.4 percent increase in November, Statistics Canada reported today in Ottawa. A median estimate of economists called for a 0.4 percent drop.

Excluding automobiles, retail revenues were down 2.3 percent.

“After removing the effects of price changes, particularly lower gas prices, sales in volume terms declined 1.3%,” the federal statistics agency said.

Sales were down in nine of the 11 retail subsectors accounting for more than 70 percent of retail trade. Sales at gasoline stations posted their biggest drop since December 2008, falling 7.4 percent. Sales were also down at clothing stores, electronics and appliance stores and general merchandise stores.

On a regional level, sales were down in all Canadian provinces, led by a 2.3 percent drop in Ontario. Sales declined 2.2 percent in British Columbia and 0.5 percent in Quebec, official data showed.

The Canadian economy could suffer a bigger downturn if oil prices remain subdued, putting more pressure on the country’s export sector. Energy exports account for about one-third of Canada’s international sales and are the lifeblood of the province of Alberta’s economy.

The Canadian dollar was mildly supported earlier in the week amid rising energy prices. Energy prices have since retreated, declining for three consecutive days. US crude declined 1.2 percent on Friday, reaching $50.56 a barrel. International benchmark Brent crude was down 0.1 percent to $60.16 a barrel after falling below $58 earlier in the week.

Friday marked the third consecutive retreat for the loonie. It is forecast to decline further over the course of the year, perhaps bottoming out below 75 cents US. Additional easing measures by the Bank of Canada could accentuate the loonie’s freefall. It was only last month that the Bank reduced its benchmark interest rate for the first time since September 2010 as a form of insurance against cheaper oil. Canada’s interest rate currently stands at 0.75 percent and could decline to a low of 0.5 percent in the coming months.

South of the border, the United States Federal Reserve is discussing the pace and timing of a first interest rate increase. The minutes of the January FOMC minutes, which were released on Wednesday, suggested policymakers were prepared to keep rates at record lows for a while longer.

The next FOMC meetings are scheduled for March 17-18 in Washington.

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