CAD: Retail sales expected to bounce back with 0.9% increase in September - TDS

Research Team at TDS, suggests that Canada’s retail sales are expected to bounce back following a period of protracted weakness with a 0.9% m/m increase in September.

Key Quotes

“Headline sales will benefit from a sharp rise in motor vehicle purchases for both individual and commercial use while higher seasonally adjusted prices at the pump should help boost sales at gasoline stations. The ex-auto series will be further supported by a bounce in existing home sales which should help sustain demand for furniture and furnishings while the sharp rebound in residential construction will support the sale of building materials. Underpinning the increase of all retail activity will be higher household incomes resulting from the continued payment of Canada Child Benefit cheques, which should show their first tangible signs of support in September.”

“Retail volumes are expected to come in a touch weaker but nominal outperformance should be limited due to the modest rise in consumer prices. While a strong rebound in September is a welcome development for consumer spending, the nearterm growth outlook remains subdued and additional months of strength will be needed to raise confidence in consumer momentum.”

“Foreign Exchange

We expect the price action in the greenback to remain the critical driver for major currencies. That means, CAD is less likely to pay close attention to local data. Even so, we think the USD rally has run too far, too fast so we expect further pullback amid the shortened holiday week. Retail sales will also compete with oil headlines, which may see OPEC strike a deal that boosts oil in the short-term. Better-than-expected retail sales could reaffirm the ongoing consolidation in CAD, helping drive USDCAD lower. That said, the holiday shortened week will also see liquidity dry up so we expect to remain confined to recent trading ranges. We maintain our bias to buy dips ahead of the mid-1.330 area, especially since our high-frequency models points to a move to 1.37.”