20 Nov 2015
USDCAD: Upside risk on weaker retail data - TDS
FXStreet (Delhi) – Research Team at TDS, suggests that its going to be a jam packed day for Canadian data with the dual release of retail sales (September) and CPI (October).
Key Quotes
“From an FX perspective, retail sales should be the initial focus to drive market reaction as inflation has taken a backseat for the Bank of Canada in deference to real economic activity since the collapse in commodity prices. Moreover, we are broadly in line with the market in expecting core inflation to decelerate slightly to 2.0% y/y. But as we have hinted at it all week, we expect retail sales to disappoint relative to consensus, where we forecast a decline in sales of 0.8% m/m on the headline and ex. autos measures (market: 0.1% and -0.4% respectively).”
“The retail volumes measure should also be soft and confirm our tracking for monthly GDP in September at -0.1% m/m. Not only will this suggest moderate downside risk to the BoC’s 2.5% Q3 estimate, but the poor handoff would imply that there is even downside risk to the Bank’s 1.5% Q4 estimate.”
“As such, we look for USDCAD to rally today; we expect a challenge of the 1.3370/80 area but it has proven to be thick resistance all week. Indeed, the daily RSI and stochastics suggest that USDCAD is looking toppish. The former has failed to break above trendline resistance since the July highs so, even if our forecast for a weak retail print is realized the pop higher may be short-lived. A close above 1.3380 would be bullish however and open up a significant chance of a test of the multi-year highs in the near-term.”
Key Quotes
“From an FX perspective, retail sales should be the initial focus to drive market reaction as inflation has taken a backseat for the Bank of Canada in deference to real economic activity since the collapse in commodity prices. Moreover, we are broadly in line with the market in expecting core inflation to decelerate slightly to 2.0% y/y. But as we have hinted at it all week, we expect retail sales to disappoint relative to consensus, where we forecast a decline in sales of 0.8% m/m on the headline and ex. autos measures (market: 0.1% and -0.4% respectively).”
“The retail volumes measure should also be soft and confirm our tracking for monthly GDP in September at -0.1% m/m. Not only will this suggest moderate downside risk to the BoC’s 2.5% Q3 estimate, but the poor handoff would imply that there is even downside risk to the Bank’s 1.5% Q4 estimate.”
“As such, we look for USDCAD to rally today; we expect a challenge of the 1.3370/80 area but it has proven to be thick resistance all week. Indeed, the daily RSI and stochastics suggest that USDCAD is looking toppish. The former has failed to break above trendline resistance since the July highs so, even if our forecast for a weak retail print is realized the pop higher may be short-lived. A close above 1.3380 would be bullish however and open up a significant chance of a test of the multi-year highs in the near-term.”