Canadian Dollar (CAD) Exchange Rate Fluctuates as Domestic Retail Sales Disappoint, Oil Price Slides

February 22, 2015 - Written by John Cameron

STORY LINK Canadian Dollar (CAD) Exchange Rate Fluctuates as Domestic Retail Sales Disappoint, Oil Price Slides

The Canadian Dollar exchange rate spent much of Friday trading in a stronger position against the Pound as the British currency came under pressure from worse-than-anticipated UK retail sales and public finance figures. The commodity-driven currency also gained on the Euro as a result of mounting ‘Grexit’ fears ahead of a decisive Eurogroup gathering. However, the CAD/USD pairing softened as the price of crude oil drifted back to around $51 a barrel. Further fluctuations occurred following the publication of Canada’s retail sales figures for December.

The ‘Loonie’ had gained earlier in the week off the back of improving oil prices, dovish meeting minutes from the Federal Open Market Committee (FOMC) and encouraging domestic wholesale sales figures. The Canadian Dollar was also supported on Thursday by comments issued by the Bank of Canada’s Deputy Governor. The BOC’s Agathe Cote asserted that the prospect of domestic deflation is nothing to worry about, and that while consumer prices may dip below zero in the next few months, the situation will be temporary.

Cote stated; ‘Rest assured – even if inflation turns negative for some time that would not constitute deflation. When inflation expectations are solidly anchored, as is now the case in Canada, there is no reason to fear deflation.’ By calming concerns, Cote gave the Canadian Dollar a modest boost. The ‘Loonie’ pared some of these gains thanks to a Greece-inspired risk-off environment, dipping oil prices and poor domestic data.

Canadian retail sales had been expected to fall by -0.4% on the month in December following November’s 0.4% gain. However, sales actually plummeted by -2.0% on the month. Retail sales less autos came in at -2.3% at the close of 2014, significantly worse than the figure of -0.8% anticipated. The sales report saw Statistics Canada note; ‘Most store types typically associated with holiday shopping registered weaker sales in December, more than offsetting November gains.’ Before the close of the North American session the Canadian Dollar was trading 0.2% lower against its US peer.

Next week the only Canadian report with the potential to insight ‘Loonie’ movement is the nation’s Consumer Price Index for January. A marked slowing in inflation could see the Canadian Dollar decline despite Cote’s reassurances.

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