Canadian Dollar Ends Lower After "Ugly Shock" of Retail Sales

February 20, 2015 Wall Street Journal

February 20, 2015

Canadian Dollar Ends Lower After “Ugly Shock” of Retail Sales
By: Nirmala Menon

OTTAWA–The Canadian dollar is ending weaker Friday, weighed down by worse-than-expected domestic retail sales data that caused the currency to give up early gains.

The U.S. dollar was most recently at C$1.2540, up from C$1.2496 at Thursday’s close, according to data provider CQG.

The U.S. dollar had entered the North American session on a softer note, with the greenback trading below C$1.2500 before the Canadian dollar was side-swiped by Canada’s retail sales report for December.

Sales shrank 2.0%, the most since April 2010 and five times sharper than expected amid broad declines. They included the steepest fall in gasoline station receipts in six years. Ex-auto sales contracted an even sharper 2.3%, the most since December 2008.

Some economists suggested one of the reasons was because spending that typically takes place during the holiday season had occurred early, during Black Friday sales in November.

Still “the retail sales (report) definitely put the loonie on the back foot this morning,” said Scott Smith, senior market analyst at Cambridge Mercantile Group, referring to the Canadian dollar by its popular name. He described the data as an “ugly shock to the loonie.”

The U.S dollar/Canadian dollar pair pushed through C$1.2500 to an intraday high of C$C$1.2566 in the wake of the data before the greenback ceded some of its gains.

Several economists said the soft retail sales figures raises the odds of the Bank of Canada lowering rates again at its upcoming policy meeting March 4.

The central bank cut rates unexpectedly last month, which it described as a preemptive ” “insurance” policy against the expected hit to growth and inflation from lower prices for oil, a key Canadian export. Many forecasters have since penciled in another cut in March.

However, Mr. Smith argues the Bank will hold off and wait for more data to see if another rate cut is warranted.

But he expects divergence in Canadian and U.S. monetary policy and continued softness in oil prices to weigh on the Canadian dollar, keeping the greenback’s uptrend intact in the short-to-medium term. The U.S. Federal Reserve is expected to start raising rates this year, in sharp contrast to the dovish Canadian central bank.

The main economic highlights on the Canadian calendar next week are a speech Tuesday from Bank of Canada Governor Stephen Poloz Tuesday, and January’s inflation data two days later.

Mr. Smith said the greenback is likely to trade in its recent range between.

C$1.2400 and C$1.2600 until the Bank of Canada’s policy decision in March.