- Cooling Canadian CPI data largely ignored
- Oil prices steady supported by increased demand forecasts.
- US dollar continues to trade defensive.
USDCAD: open overnight range , close , WTI , Gold $
The Canadian dollar bounced eratically following the cooling of Canadian inflation and slower but positive US Retail Sales data.
Canadians have a reason to rejoice as inflation returned to the Bank of Canada's target range of 1 to 3% in June. The Consumer Price Index (CPI) increased by 2.8% year over year. However, this positive news was overshadowed by analysts pointing out that the decline was solely due to base-year effects in the transportation component. Notably, gasoline prices fell by 21.6% in June, and if gasoline was excluded, the CPI would have been 4.0%.
The Bank of Canada introduced its own inflation measurements in addition to StatsCan data. These measurements include CPI-trim, CPI-median, and CPI-common. Unfortunately, these measures showed minimal change, with CPI-trim decreasing to 3.7% from 3.8% in June and CPI-median falling to 3.9% from 4.0%. CPI-common is disregarded due to its susceptibility to significant historical revisions.
The market response to the report was subdued as Canadian dollar traders were influenced by the recent 25 basis point rate hike by the Bank of Canada. However, another inflation report is expected before the next BoC monetary policy meeting on September 6.
Canadian Retail Sales data is scheduled for release on Friday. The headline number is projected to rise by only 0.5%, compared to 1.1% in April, while the ex-autos component increased by 0.3% month over month (previously 1.3%). Since this data is outdated and the Bank of Canada has already taken action, its impact on Canadian dollar trading is expected to be minimal.
While the Canadian data took a back seat, the focus quickly shifted to the simultaneous release of US Retail Sales. Although the headline and ex-autos retail sales were slightly below expectations, they remained in positive territory. The Retail Sales Control Group, which excludes volatile components such as auto sales, building materials, and food services, showed a 0.6% increase, surpassing the consensus forecast of 0.3%. This indicates that the American consumer is still spending, providing optimism for those anticipating a soft landing for the economy.
As the week progresses, attention will turn to European and UK data. While the data may be of high importance, ECB President Christine Lagarde has already hinted at an upcoming rate hike on July 27, making it unlikely that the data will alter the outcome.
No significant Canadian economic reports are expected today, and the only notable US data consists of June Housing Starts and Building Permits
