Canada’s Inflation Slows. GDP Data Awaited

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Latest inflation report from Statistics Canada released on Thursday showed that the total CPI declined 0.4% on the month pushing the 12-month pace to 1.2% in November, down from 1.5% previously. The decline in inflation was larger than the expected 0.2%. Gasoline prices fell 4.3% during the month which was the main factor in pushing inflation lower.

Canada Inflation, November 2016: 1.2%
Canada Inflation, November 2016: 1.2%

Excluding the energy, CPI was down 0.2% on the month with nearly five out of the eight categories posting a decline. The newly introduced CPI measures, CPI Common, CPI trim and CPI median also showed weakness in consumer prices. However, data was very mixed. CPI common was at 1.3% which was the lowest pace of increase since June 1996 and closer to the bottom range of the BoC’s target. CPI median was up 1.9% but showed the slower gain since November last while. CPI trim was recorded at 1.6%, the lowest since June 2015.

Despite the mixed data in the different CPI measures, the signs were clear that inflation weakened from the 2% mid-point target in November.

Canada Retail sales beat expectations

Statistics Canada also released the retail sales figures for October, which showed 1.1% acceleration during the month, gaining from the 0.8% increase in September. The monthly retail sales figures pushed the yearly growth rate to 3.8% from 2.9% previously. Retail sales data also beat estimates of a 0.3% increase on the month. Excluding sales of motor vehicles and parts, retail sales rose 1.4% during the reported month beating the estimates of 0.7% increase. Removing the effects of price changes, retail sales by volume rose 0.6% in October slightly lower than September’s 0.7% increase. Sales at gasoline stations rose 3.8% which was the highest increase since April this year while sales at general merchandise stores rose 1.9% rising for the third month.

Canada Retail sales (October): 1.1% ($45.0 billion)
Canada Retail Sales (October): 1.1% ($45.0 billion)

The Canadian dollar weakened on the data as USDCAD maintained the gains since last week’s FOMC meeting where the Federal Reserve hiked interest rates by 25 basis points.

USDCAD Technical Outlook

USDCAD has been inching steadily higher especially after prices bounced off the trendline last week connecting the weekly lows at 1.0630 from 7th July 2014 and 1.2460 lows from 2nd May 2016. The resulting bullish engulfing pattern is currently seeing a follow through with prices pushing higher. So far, the retracement to the decline has pushed above 38.2% with further gains likely to see the dollar rise towards 1.3838 marking the 61.8% Fibonacci level on the weekly chart.

In the long term, USDCAD could be seen likely to post a reversal near the 1.3838 region as price consolidates with the larger broadening wedge pattern. If a reversal near 1.3838 is confirmed, USDCAD could be looking to a renewed decline that could potentially push the dollar lower towards 1.2798 which is a support level that could be tested.

USDCAD Weekly chart: Price moving within the broadening wedge pattern
USDCAD Weekly chart: Price moving within the broadening wedge pattern

On the daily chart, USDCAD could potentially post a near-term pullback towards the support at 1.3244 where minor support exists. A retest of this level could see a renewed move to the upside in USDCAD which could continue the rally towards 1.3838.

USDCAD Daily Chart: Watch for a pull back to 1.3244
USDCAD Daily Chart: Watch for a pullback to 1.3244

On the economic front, the monthly GDP figures for October is expected to show a flat print with economists’ expecting to a 0.0% – 0.1% increase during the month. This comes after a 0.3% increase registered in September. On a seasonally adjusted basis, the year over year GDP growth is expected to rise 1.8%, down from 1.9% seen previously.

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