USD/CAD drops below 1.4000 as Canadian retail sales beat expectations

Statistics Canada said the August gain was broad-based, with all nine retail subsectors posting increases. Core sales, which exclude autos and gasoline, climbed 1.1%, reversing a 0.7% drop in July, led by food, general merchandise and health and personal care stores. Gasoline receipts rose 1.7% even as volumes fell 0.5%, suggesting the increase there came from prices rather than demand.

The data offer some relief after real GDP was flat in July, pointing to firmer goods consumption heading into the third quarter. But the picture for Canada’s economy remains uneven: the country shed 68,000 jobs in September, including 35,000 full-time roles, while the unemployment rate rose to 6.5% from 6.4% — a second straight monthly decline in employment. The retail figures predate that weakness, and September’s own spending estimate is still preliminary.

Inflation also sent mixed signals. Headline CPI rose 3.1% year-on-year in September, up from 3.0%, driven largely by gasoline. Stripped of energy costs, price growth slowed to 2.2% from 2.4%, while core measures CPI-trim and CPI-median eased to 1.8% and 1.9% respectively.

The Bank of Canada (BoC) held its policy rate at 2.25% in September and is due to deliver its next decision, alongside updated forecasts, on October 28. Resilient spending could reduce the central bank’s urgency to cut rates further, though the weaker labour market remains a concern.

In currency markets, USD/CAD extended its slide, touching a session low of 1.3983 and marking a sixth consecutive daily decline, with chart watchers eyeing the 1.3948-1.3966 zone as the next area of interest on the downside.

Why it matters: Stronger-than-expected Canadian retail spending supports the Canadian dollar and adds a modestly hawkish signal for the BoC ahead of its October 28 decision, a factor USD/CAD traders will weigh against the softer September jobs report.

Source: investingLive