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USD/CAD Extends Gains After Canadian CPI and Retail Sales Data Miss

USD/CAD Extends Gains After Canadian CPI and Retail Sales Data Miss

Diego Colman,

Talking Points:

- July Headline Inflation falls 0.2% below market expectations for a 0.0% print. At an annualized basis, CPI eases to 1.3% from 1.5% in June, trailing market forecasts. Core CPI at 0.0% m/m and unchanged at 2.1% y/y, in line with expectations.

- USD/CAD extends gains after Canadian CPI and Retail Sales data trailed estimates.

- Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Inflationary pressures continued weakening in July Statistics Canada reported today.

The agency said that its consumer price index fell 0.2% in July from the prior month. At an annualized basis, headline inflation eased to 1.3% from 1.5% last month. Analysts polled by Bloomberg had expected the annual inflation rate to slip to 1.4%. Stripping energy and food, consumer prices was unchanged in July and remained at 2.1% year on year, in line with expectations.

Bank of Canada targets inflation of 2.0% and tries to maintain it within a range of 1.0% to 3.0%. Headline CPI has trended consistently below 2.0% since the outset of the year raising some concerns about disinflation. Nevertheless, core inflation; which has remained above 2.0% for most of 2016, has removed some pressure off the Central Bank to ease monetary policy. Regardless, Bank of Canada continues to be confident about the inflation outlook and has repeatedly indicated that Headline CPI is on track to converge to 2.0% in 2017.

Concurrently, Statscan published June Retail Trade data. The report showed Retail Sales fell 0.1% month over month in June from a 0.2% increase in May. Excluding auto Retail Sales contracted 0.8% vs expectations for a 0.3% expansion. Although the Central Bank had repeatedly warned that economic data for the second quarter would remain soft and would only pave the way for a stronger Q3, today’s weak retail sales figures and CPI are likely to intensify the Central Bank’s quandary, and may set interest rate cut talks in motion.

Here’s a summary of the Canada data print:

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Chart 1: USD/CAD 1-minute Chart Intraday (Aug 19, 2016)

Immediately after the Canadian July CPI and June Retail Sales release USD/CAD spiked as high to C$1.2890 as the data may intensify rate cut talks. At the time this report was written, USD/CAD had settled around C$1.2878.

Read more: USD/CAD on Its Longest Daily Losing Streak in More Than 5 Years

--- Written by Diego Colman, DailyFX Research

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.