Canadian Dollar Roars into the Weekend thanks to Consensus-busting Inflation and Retail Sales Data

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Data out of Canada ahead of the weekend has allowed the Canadian Dollar to top the foreign exchange leaderboard.

The Canadian Dollar advanced against all of the G10 on news that retail sales grew 2.0% on a month-on-month basis in May, well ahead of expectations for a 1.1% read.

Inflation meanwhile read at 0.1% on a monthly basis in June, in line with expectations but annualised inflation read at 2.5%. Inflation is now running at its fastest pace in six years and clearly justifies the Bank of Canada's decision to embark on a process of gradual interest rate rises.

Above: CAD is the best-performing major currency on the day thanks to better-than-forecast data.

The Pound-to-Canadian Dollar exchange rate is currently quoted at 1.7202 while the USD/CAD rate is nearly a full percent lower at 1.3128.

"In light of today’s data, there is a growing possibility that the Bank of Canada will be forced into action once more this year," says Royce Mendes at CIBC.

The promise of a faster rate of interest rate rises should keep CAD bid going forward, provided incoming data maintains this tempo of course.

The retail sales surprise was largely driven by a stronger than expected ex-
autos reading which blew past expectations with a 1.4% advance versus the 0.5% consensus estimate.

Adding to the good news, sales in April were also revised three ticks higher.

"Better weather appears to have played a major role in both the strong headline and stripped down readings for May. A return of shoppers following April’s unseasonable weather saw auto sales rise, though that was factored into expectations based on unit auto sales data. Gasoline showed strength as drivers returned to the roads boosting sales volumes," says Mendes.

The advance in inflation was largely attributable to a turnaround in food prices which had limited gains in the index for the better part of the year.

"Following today’s releases the currency gained ground and fixed income sold off as
expectations increased for another Bank of Canada move in the coming months," says Mendes.

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