The Canadian dollar has edged lower in Thursday trade. USD/CAD is currently trading at 1.2344, up 0.21% on the day. In the Asian session, the pair dropped to 1.2288, its lowest level since late June.
Retail Sales expected to rebound
Canada releases Retail Sales for August on Friday. This key event, which is the primary gauge of consumer spending, is expected to bounce back strongly after a disappointing July. The headline reading came in at -0.6% and Core Retail Sales declined by 1.0%. The consensus for August stands at 2.0% for the headline read and 2.8% for the core release. Strong gains would point to renewed consumer confidence and spending and could give the Canadian dollar a boost.
On the inflation front, CPI surged to its highest level since February 2003. September CPI hit 4.4% (YoY), up from 4.1% in August. The spike in inflation is not due to a booming economy, but rather a result of global supply-chain disruptions and higher consumer demand that have resulted in product shortages and sent prices higher. As well, oil prices have gone through the roof, which has meant higher energy costs for consumers.
The Bank of Canada is carefully monitoring inflation and Governor Tiff Macklem said that inflation would take longer to fall than previously expected. Sound familiar? Fed Chair Powell, who has insisted that inflation is temporary, told a congressional committee late last month that inflation would persist longer than the Fed had expected. Even with the September inflation data, it’s unlikely that the BoC will change its stance that this bout of high inflation is transitory. If inflation levels continue to head north, bank policy makers may have to give some thought to tightening monetary policy by scaling back its bond-purchase programme.
- USD/CAD tested support at 1.2300 in the Asian session. Below, there is support at 1.2238
- There is resistance at 1.2462, followed by 1.2562
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