Canadian Dollar Surges After Release of Strong Retail Sales Data (Ex-auto) in June

The Canadian Dollar (Loonie) surged higher on Tuesday after data showed a surprising rise in Canadian retail sales. 

Although broad, headline retail sales came out lower-than-expected core retail sales, which excludes cars, rose strongly in June.
Core Retail Sales, or Retail Sales Ex-autos, rose by 0.7% compared to -0.1% in the previous month of May; this was over double the 0.3% forecast by analysts.

“Higher sales at general merchandise stores, clothing and clothing accessories stores, and building material and garden equipment and supplies dealers offset lower sales at motor vehicle and parts dealers and gasoline stations. Excluding the latter two subsectors, retail sales were up 1.1%,” said official compilers of statistics for the Canadian government Statcan.

In the ten minutes after the news GBP/CAD fell from 1.6137 to 1.6058 actually gapping down lower in that time.  

The fall was in line with our week ahead forecasts released on Sunday August 20, which said we thought there would be a continuation of the established downtrend towards the next target at 1.6000. 

“Canadian data has been on a long hot streak for much of the year where data surprises have persistently surprised to the upside. Our concern at this juncture is that this kind of data momentum is unsustainable, which also leads us to believe that a lot of good news is already priced into CAD,” said Canadian Investment Bank TD Securities prior to the release, which they thought would disappoint.

Yet their expectations were way out in the end:

“Indeed, we look for headline and core (ex. autos) retail sales to fall by 0.4% m/m and 0.6% m/m respectively compared to consensus expectations of a 0.2% m/m and 0.1% m/m increase,” said TD’s Richard Kelly.

The main drag on sales came from a mixture of lower car sales and a fall in gasoline prices.

“Following a 2.3% gain in May, sales at motor vehicle and parts dealers decreased 1.4%. Lower sales at new car dealers (-2.0%) accounted for the decline at the subsector level, more than offsetting gains at the other store types. Sales at automotive parts, accessories and tire stores (+1.2%) rose for the fifth consecutive month.

Following a 1.2% decline in May, sales at gasoline stations decreased 1.8% in June, in part due to lower gasoline prices,” said Statcan.

CIBC Economics’ Andrew Grantham pointed out that on a year-on-year basis – ie compared to June 2016 – retail sales had risen by almost 8.0%, which was:

“At the high end of the range it typically trends in and elevated versus the pace of household income growth, so we should expect to see some moderation in the second half of the year.”

He added that he thought this would be positive for the Loonie going ahead.

“For now, though, the retail sector continues to look strong and today's release should be slightly positive for the C$ and negative for fixed income,” said Grantham.

USD/CAD fell to 1.2526 after the event from a pre-release level of 1.2576.