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Howdy, forex friends! If you’re lookin’ to pillage some quick pips from the Loonie or if you just wanna avoid periods of potentially higher volatility, then just know that Canada will be releasing its retail sales report on Thursday (June 22, 12:30 pm GMT) and CPI report this Friday (June 23, 12:30 pm GMT).

And if you’re lookin’ to get up to speed on what happened last time and what’s expected this time, then you better read up on today’s write-up.

Canada’s Retail Sales Report (April)

What happened last time?

  • Headline retail sales m/m: +0.7% vs. +0.4% expected, -0.4% previous
  • Core retail sales m/m: -0.2% vs. +0.2% expected, -0.1% previous

Canada’s March retail sales report was mixed on the surface since the headline value of retail sales rose by a faster-than-expected 0.7% (+0.4% expected, -0.4% previous) while the core reading printed a disappointing 0.2% fall instead of recovering by 0.2% (-0.1% previous).

The details were a bit mixed as well since 6 of the 11 store types reported higher sales. However, a closer look at the details reveals some negative undertones since the lion’s share of the increase in retail sales came from the 3.2% surge in sales from motor vehicles and parts stores.

This is a not really all that good since vehicles sales tend to be volatile, which is why that component is stripped from the core reading.

Also, stripping vehicle sales resulted in a negative core reading, which means that the increase in sales reported by stores (other than vehicles and parts stores) were not enough to offset the decrease reported by other store types. And that’s a bad thing.

Overall, the retail sales report looked mixed on the surface, but becomes noticeably more negative once you start digging into the details.

What’s expected this time?

  • Headline retail sales m/m: +0.3% vs. +0.7% previous
  • Core retail sales m/m: +0.7% vs. -0.2% previous

For Canada’s upcoming April period retail sales report, the general consensus is that the headline value of retail sales increased by 0.3%, which is a bit slower compared to the 0.7% increase reported in March.

However, the core reading is expected to rebound by 0.7%, which implies that most economists think that non-vehicle sales would be the driver for the increase in retail sales in March.

Looking at the available leading and related indicators, average hourly earnings fell by 0.15% in April (+0.04% previous). This is the first contraction in wages in eight months and may have dampened consumer spending.

Moving on to the breakdown of Canada’s jobs report, employment in the retail and wholesale trade industry fell by 0.3% in April, which may also be a sign of weaker retail sales.

However, Canada’s April trade data shows that imports of consumer goods increased by 3.7% month-on-month in April. Imports of vehicles and parts, meanwhile, fell by 0.4%. This therefore supports the implied consensus that vehicles sales slowed in April, resulting in a weaker headline reading but a stronger core reading.

Moreover, wholesale sales in Canada posted a 1.0% month-on-month increase in April, beating expectations for a 0.5% increase but weaker than the previous +1.2% increase. Also, the 1.7% decline in wholesale vehicle sales was one of the major drags.

Overall, the leading and related indicators are mixed because we have negative wage growth and job shedding in the retail and wholesale trade industry on one hand. But on the other hand, we have imports and wholesale trade data showing weaker vehicle imports but a rebound in imports of other consumer goods.

Taken as a whole, however, the available leading indicators all seem to point to a weaker headline reading, but imports and wholesale trade data are pointing to a recovery in the core reading. The consensus readings therefore look about right.

Canada’s CPI Report (May)

What happened last time?

  • Headline CPI m/m: +0.4% as expected vs. +0.2% previous
  • Headline CPI y/y: +1.6% vs. +1.7% expected, +1.6% previous
  • Trimmed Mean CPI y/y: +1.3% vs. +1.4% previous
  • Weighted Median CPI y/y: +1.6% vs. +1.7% previous
  • Common Component CPI y/y: +1.3%, matched previous pace

Canada’s April CPI report was clearly a disappointment. Sure, headline CPI increased by 0.4% month-on-month between March and April, which is in-line with the general consensus.

Year-on-year, however, CPI only increased by 1.6% in May, which is the same pace of annual increase as in March, but is a tick slower than the +1.7% consensus.

Also, the BOC’s April Monetary Policy report showed that the BOC expects annual inflation to come in at +1.7% by the end of Q2, so the miss in May is twice as disappointing.

Worse than that, two of the BOC’s three preferred measures for the core reading eased further in May, namely the trimmed mean CPI, which excludes CPI components that show the most extreme movements in a given month, and the weighted median CPI, which filters out extreme movements specific to certain CPI components in a given month.

What’s expected this time?

  • Headline CPI m/m: +0.3% expected vs. +0.4% previous
  • Headline CPI y/y: +1.5% expected vs. +1.6% previous

For the inflation situation in the month of may, most economists forecast that the headline reading will print a +0.3% month-on-month increase (+0.4% previous) and a +1.5% year-on-year increase (+1.6% previous). Economists are therefore expecting the rate of inflation to slow down on both a monthly and annual basis.

Taking a look at the available economic reports, the prices index of Ivey’s comprehensive PMI report dropped from 70.9 to 51.3 in May. This means that prices still increased in May, but at a much slower pace compared to April.

Meanwhile, Markit’s PMI report appears to support Ivey’s weaker prices index since commentary from Markit note that “input cost inflation held close to April’s three year high.” Also, “Efforts to alleviate some of the squeeze on operating margins led to a rise in factory gate prices for the seventh month running.”

Overall, the two leading indicators agree that the pace of inflation moderated between the months of April and May. The consensus for a slower month-on-month rise in inflation therefore looks about right.

How does the Loonie usually react?

As with all economic reports, a better-than-expected reading generally triggers a quick Loonie rally while a worse-than-expected reading usually causes a quick Loonie selloff.

And generally, traders focus mainly on the core retail sales reading and the monthly CPI reading.

Also note that Canada’s CPI and retail sales reports are usually released separately. However, the previous release of both reports were released simultaneously on May 19.

The CPI report was a disappointment, though, while the core reading for the retail sales report mixed expectations and the overall details were disappointing to boot. It’s therefore understandable why the Loonie took a step back when the reports were released.

Overlay of CAD Pairs: 15-Minute Forex Chart
Overlay of CAD Pairs: 15-Minute Forex Chart

However, I just wanna stress that traders should only use these economic reports to pillage some quick pips from the Loonie since follow-through buying or selling is generally dictated by oil prices.

And an example of that is how price action on the Loonie evolved after the previous CPI and retail sales reports were released. As you can all see, the Loonie quickly recovered after taking a step back, and that was due to higher oil prices at the time.