USDCAD, Daily
Canada’s retail sales are consistent with a resumption in April GDP growth of 0.1%. The 0.1% gain in retail shipment volumes during April (values grew 0.9%) follows the equally subdued 0.2% rise in April wholesale shipment volumes. There was a sizable 1.4% gain in April manufacturing shipment volumes, however. The expected 0.1% gain in April GDP would follow the 0.2% pull-back in March and 0.1% dip in February. But that will give way to a hefty 0.5% m/m decline in May, leaving a 1.0% drop in real Q2 GDP due to the temporary halt in oil sand production. As for the other related data housing starts did slow 5.2% to a 191.4k unit clip in April, which could leave a negative contribution from construction production. Mining, oil and gas production are the usual wildcard, but appear to be on track to add to total GDP growth in April. Manufacturing petroleum and coal product shipment values rose 8.3% in April while energy exports grew 7.6% in April.
Canada CPI is also outperforming US, EU and Japan. Canada’s CPI outperforms comparable measures in the US, Japan, and Eurozone. Notably, the potential for deflation is a minor concern in Canada, contrasting with ongoing worries in Japan and Europe and lingering concern that the U.S. recovery will underwhelm and thus restrain price growth. While there are caveats to Canada’s inflation outperformance in recent years, faster total and core CPI growth remains an important advantage as the G-7 nations maintain historically accommodative monetary policy conditions in order to facilitate the long sought return to self-sustaining economic and inflation growth.
USDCAD traded to a nine-session low of 1.2743 following the better Canadian retail sales outcome, before reversing to 1.2800. WTI crude is off earlier highs, now trading south of $50/bbl, as weekly US Crude Oil inventories, expected to show a drawdown of 1.3 million barrels, actual came in the same as last week at 0.9million barrels.
Next support for USDCAD is penciled in at 1.2700, 1.2640 and then not till 1.252. To the upside there is resistance at 1.2850 (50 DMA) 1.2970 and 1.3100.
Janne Muta
Chief Market Analyst
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