Canadian Dollar Weakens Despite Strong November Retail Sales

The Canadian dollar is weakening against most major currency competitors to close out the trading week. Despite retail sales coming in stronger than expected and inflation matching market expectations, the loonie’s decline could still be driven by the central bank leaving interest rates unchanged. Is the market signaling that a rate cut is needed to resuscitate economic growth?

In November, retail sales climbed 0.95%, rebounding from the 1.1% decline in October. The market had penciled in a gain of just 0.4% and this represents the best monthly increase since March. The boost in retail sales was driven by higher motor vehicle, food, building materials, and gasoline station receipts. Year-on-year, retail commerce surged 1.9%, up from 0.4% in the previous month.
Earlier this week, the December inflation rate was flat at 2.2% and met the median estimate. The new housing price index edged up 0.2% last month. Wholesale sales slipped 1.2% in October, which was unchanged from the previous month.
The Bank of Canada (BoC) dominated national business headlines this week as policymakers kept rates the same at 1.75%. Officials say that they will monitor the economy and determine if the slowdown is the new normal and if it is due to various events, such as workplace disruptions, supply issues, and weather. The BoC expects the gross domestic product (GDP) will grow by 1.6% in 2020 and 2% in 2021.
The fall in energy prices also contributed to the loonie’s drop on Friday. March West Texas Intermediate (WTI) crude oil futures tumbled $1.44, or 2.59%, to $54.15 per barrel. February natural gas futures shed $0.03, or 1.53%, to $1.875 per million British thermal units (btu). Crude continues to be Canada’s top export so where there is a significant fluctuation in prices it will affect the economy.
The USD/CAD currency pair rose 0.14% to 1.3147, from an opening of 1.3128, at 18:11 GMT on Friday. The EUR/CAD slumped 0.1% to 1.4500, from an opening of 1.4511.

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