Canada: Retail sales forecasted to decline by 0.4% m/m - TDS

According to the research team at TDS, the Canadian retail sector is expected to cool in February, with headline sales forecast to decline by 0.4% m/m.

Key Quotes

“Weaker gasoline prices will act as a significant headwind for nominal consumer spending while a broader decline in seasonally adjusted consumer prices should lead to a modest outperformance in volumes. Auto sales are expected to edge higher amid industry reports showing increased sales activity, which could result in a record month. Meanwhile, a sharp rise in home sales should drive demand for furniture and furnishings.”

“Outside of transportation and housing, we can expect a more disappointing performance with a number of industries likely to see sales pullback following the sharp increase in January. However, this is unlikely to cause great concern for the Bank of Canada amid heightened anxiety over household imbalances and a desire to see a more balanced growth profile. Furthermore, the Bank is unlikely to be overly concerned with a modest deceleration in February due to the strength of real retail sales last month, which will serve as an anchor for the quarter.”

“Foreign Exchange

• A softer headline could add to the weaker tone in CAD. We note that some key releases (notably, March inflation) have missed expectations over the past few weeks. A turn in data surprises and the recent trade announcements have seen CAD underperform the broader G10 the past two weeks. Even so, we think that much of the move is overblown and prefer fading the rallies as we approach critical technical levels.
• The pair is trading over two standard deviations rich from our read of the cyclical drivers, suggesting the bar is low to trigger a consolidation in it. What’s more, the survey of economists shows the market is leaning towards a softish number so a weak number might be absorbed better given the low bar for a positive surprise. Nonetheless, our bias is to continue to fade the rally in USDCAD with 1.3650 the next key level to watch and our HFFV pointing to move back below 1.33.”