The Canadian dollar has started the week with gains. USD/CAD is trading at 1.2852 in the North American session, down 0.54% on the day.
Canada’s retail sales sparkle
Canada released June retail sales on Friday, and the data was stronger than expected. Retail sales surged to 2.2%, up from 0.7% in May (1.6% exp.). Core retail sales also accelerated, with a gain of 1.9%, up from 1.1% in May (1.6% exp.). The June numbers mark a fifth consecutive increase and points to solid consumer spending.
The Bank of Canada will take a long break after its 1% mega-hike earlier in July. The next meeting doesn’t take place until September 7th which will give the central bank plenty of time to monitor economic data and consider its next move. We can expect further rate hikes in the second half of the year, with inflation rising to 8.1% in June, up from 7.7% in May.
The question facing policy makers is how much to tighten at upcoming meetings. There are serious concerns about a possible recession, but the strong retail sales data shows that consumers are spending despite inflation and higher rates, which means that the BoC may feel that the economy is resilient enough to absorb additional supersize hikes in order to reel in inflation.
After last week’s inflation release, BoC Governor Tiff Macklem said that inflation is likely to remain above 7% for the rest of the year which is “painfully high”. Macklem added that the bank is front-loading its interest rate hikes in order to curb inflation, and the Bank will be raising rates again “pretty quickly”.
USD/CAD Technical
- There is resistance at 1.2921 and 1.3019
- USD/CAD has support at 1.2817 and 1.2719
