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The forex price action of most Loonie pairs has kinda decoupled from falling oil prices recently, due to the BOC’s decision to maintain rates contrary to the expectations of most forex traders and market analysts.

USD/CAD 1-Hour Forex Chart
USD/CAD 1-Hour Forex Chart

But the fun on the Loonie train may not be over yet since we’ve got two top-tier economic reports coming our way this Friday.

1. CPI

Statistics Canada is expected to release its CPI readings this Friday (Jan. 22, 1:30 pm GMT). But before that, let’s take a look at the previous readings.

  • Headline CPI m/m: -0.1% vs. 0.1% expected, 0.1% previous
  • Headline CPI y/y: 1.4% vs. 1.5% expected, 1.0% previous
  • Core CPI m/m: -0.3% vs. 0.0% expected, 0.3% previous
  • Core CPI y/y: 2.0% vs. 2.3% expected, 2.1% previous

As y’all can see, the CPI readings for the November period were pretty disappointing since the headline reading printed a 0.1% month-on-month decline while the core reading printed a 0.3% monthly decline.

The headline reading did look better on an annualized basis, but the core reading, which presents a stronger case for the underlying trend, saw a downtick from 2.1% to 2.0% when most forex traders were expecting the core reading the advance by 2.3%.

For the upcoming CPI report, the consensus among most market analysts is that the headline reading will deteriorate on a monthly basis due to the recent slump in oil prices, but the annualized reading will continue to climb.

Both the monthly and annualized core readings, meanwhile, are expected to have a repeat performance of the previous month. The expected readings are as follows:

  • Headline CPI m/m: -0.3% expected, -0.1% previous
  • Headline CPI y/y: 1.7% expected, 1.4% previous
  • Core CPI m/m: -0.3% expected, same as previous
  • Core CPI y/y: 2.0% expected, same as previous

Unfortunately, there are only a few leading indicators for Canada’s CPI, but Canada’s Industrial Producer Prices Index did print a 0.2% decline during the November period after a 0.5%$ fall during the previous month.

And that may carry over into the month-on-month CPI readings for December, especially since consumer-related items (namely food) saw large drops. Meat, fish, and dairy products, for example, were down by 1.5%, which is “their largest decline since September 2008.”

Also, commentary from the December period PMI report from Markit/RBC warned that “Anecdotal evidence suggested that strong competition for new work had resulted in renewed price discounting at the end of 2015.

At the same time, overall input price inflation eased sharply to its weakest since January, despite continued upward pressure on costs from the weaker exchange rate.”

2. Retail Sales

Statistics Canada will also be releasing its November period retail sales together with the CPI report. Talk about a double whammy! Anyhow, let’s review the retail sales readings for the October period first.

  • Headline retail sales m/m: 0.1% vs. 0.4% expected, -0.4% previous
  • Core retail sales m/m: 0.0% vs. 0.4% expected, -0.4% previous

Well, both the headline and core readings failed to meet the market’s expectations, but both readings also managed to beat the previous readings, which is good.

Clothing stores (+1.8%) and shoe stores (+1.8) led the way, but Canadians were probably not eating well (or planting their own food) since the value of retail sales in all food and beverage stores was down by 1.2%.

Do note, however, that both retail sales readings refer to the total retail sales value. In terms of sales volume, retail sales actually declined by 0.3%, which is kind of bad.

Anyhow, the consensus for this Friday’s retail sales reading for the November period are as follows:

  • Headline retail sales m/m: 0.3% expected, 0.1% previous
  • Core retail sales m/m: 0.4% expected, 0.0% previous

Our primary leading indicator for retail trade is (quite obviously) wholesale trade. And wholesale trade during the November period jumped by 1.8% after a 0.5% contraction during the previous month.

According to the report, “The motor vehicle and parts subsector recorded the largest gain in dollar terms in November, with sales rising 4.8% to $10.0 billion.” It, therefore, makes sense that both the headline and core retail sales readings are expected to increase.

Final thoughts

Both the CPI and retail trade reports will be released at the same time, which kinda complicates things if the reports conflict.

Personally, I think a downbeat CPI report has been priced in already since the BOC did warn in yesterday’s Monetary Policy Report that “Total CPI inflation is expected to remain well below 2 percent through 2016.”

However, the BOC’s accommodative monetary policy is meant to facilitate a “reorientation of the Canadian economy toward the non-resource sector,” and retail trade is a major component of that since retail sales are the primary gauge for consumer spending.

And consumer spending, in turn, is gonna help keep the Canadian economy afloat while it undergoes this “reorientation.” In short, I think the retail sales report is gonna have more weight between the two, assuming the two reports conflict.

How about you? Which of the two reports are you gonna focus on? And how do you think the reports will turn out?