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Canadian Dollar Treads Water on Divergent Data Releases

H.S. Borji
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Canadian Dollar Treads Water on Divergent Data Releases

The Canadian dollar was little changed against its US counterpart Friday, as investors weighed tame inflation data against a stronger than expected rise in retail sales.

The loonie, as the Canadian currency is called, traded at 0.9138 US, little changed from its previous close. The currency traded within a tight range of 0.9120-0.9150, and is on pace for a weekly decline of 0.5 percent.

The USDCAD was trading at 1.0945. The daily chart shows initial support likely found at 1.0923 and resistance at 1.0974. The pair eased off a three-month high on Thursday, snapping a three-day winning streak, as investors took profits following the greenback’s latest data-driven rally.

In economic data, Canadian inflation weakened in July, weighed down by softer gasoline, healthcare and clothing costs.

Consumer prices in Canada declined 0.2 percent last month, following a gain of 0.1 percent in June, Statistics Canada reported today in Ottawa. A median estimate of economists called for a 0.1 percent decline.

Compared to July 2013, consumer prices were up 2.1 percent, marking the fourth consecutive month annualized inflation was at or above the Bank of Canada’s 2 percent target. Consumer price growth in April reached the BOC’s target of 2 percent for the first time in two years.

So-called core prices, which strip away volatile products such as food and gasoline, declined 0.1 percent in July, following a similar drop the previous month. Economists forecast no change in the core reading.

The monthly drop in core prices translated into an annualized gain of 1.7 percent, which was below the consensus estimate of 1.9 percent.

Rising inflation in recent months has reduced expectations the central bank would cut interest rates further in the future. The BOC, which has held its overnight rate at 1 percent for nearly four years, had promised to consider a further rate deduction should the economy continue to stagnate. Rising inflation put a tentative end to that speculation, which in turn helped spur a rally for the Canadian dollar.

However, the BOC has downplayed the sudden spike in consumer prices, claiming it was driven by temporary factors such as higher energy costs.

In other news, Canadian retail sales rose 1.1 percent in July to a new record high of CAD $42.6 billion, StatsCan reported today.

Year-on-year, sales rose 4.7 percent.

Excluding auto sales, retail receipts were up 1.5 percent.

Today’s retail sales figures suggest consumer spending continues to be a key driver of Canada’s economic recovery. Strong consumer spending habits in the second quarter are expected to lift GDP figures in the second quarter.

The BOC’s revised outlook suggests Canada’s economy will grow 2.2 percent this year, followed by a faster pickup next year. Central bankers had previously forecast a gain of 2.3 percent this year.

Canada’s gross domestic product advanced only 1.2 percent annually in the first quarter, as inclement weather put a cap on household consumption and business spending.

GDP has been rising steadily in the second quarter. May marked the fastest pace of economic expansion in four months, suggesting the economy was recovering at a solid pace.

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