USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

The U.S. Dollar/CDN (U.S. Dollar/Canadian Dollar) Rate is expected to continue to weaken, despite the recent rise in retail sales data released by Statistics Canada. If retail sales data released by the Bank of Canada does not improve or if inflation and employment data are weak, the U.S. dollar/CDN rate may weaken to levels that make Canada a less attractive investment market for international investors.

Consumer confidence in Canada remains at a five-year low. This weakness may dampen consumer spending and slow the pace of employment growth. This may result in an increased dollar/CDN rate, or an appreciation of the Canadian currency against the U.S. dollar.

Recent news reports from the Federal Reserve indicated that it did not see a significant increase in unemployment in Canada. However, the Bank of Canada has continued to raise interest rates in response to the U.S. Federal Reserve’s announcement of an increase in interest rates, which will likely result in the U.S. dollar/CDN rate moving higher.

The U.S. Federal Reserve is expected to begin reducing its balance sheet in the near future, which may result in more stimulus from the Federal Reserve and a move up the U.S. dollar/CDN rate. The Federal Reserve will probably hold off on raising interest rates until it sees evidence of increased employment and inflation. As mentioned, consumer confidence continues to remain at a historic low level. This weakness in consumer spending may continue to depress U.S. retail sales data, resulting in an increase in the U.S. dollar/CDN rate.

The Canadian retail sales data is expected to remain weak. Retail sales growth is expected to be moderate over the next year and analysts do not expect a meaningful rebound in the U.S. dollar/CDN rate before 2020. This means that Canadian consumers may face a difficult transition from the current level of low inflation to sustained inflation in the future.

The Canadian dollar has depreciated strongly against the U.S. dollar over recent years. This depreciation has resulted in a reduction in the number of Canadian dollars that can be imported into the U.S. and a corresponding increase in U.S. dollars that can be exported from the U.S. Over the past two years, U.S. imports have exceeded exports.

Retail sales data released recently by Statistics Canada indicates that the average price of all goods sold in Canada declined in January, which may suggest further declines in retail sales data. and a further strengthening of the Canadian dollar.

In order to determine if these trends will continue, it is necessary to analyze the trend lines in retail sales and the strength of the Canadian dollar in the past and future to determine whether a further move may result in an appreciating Canadian dollar or an appreciating U.S. dollar. The strength of the Canadian dollar may affect the U.S. Dollar/CDN rate by making it harder for Canadians to purchase U.S. dollar and vice versa.

Over the last decade, the U.S. dollar has depreciated strongly against Canadian currency while Canadian currency has appreciated only slightly against U.S. dollar. There are numerous reasons for this phenomenon and many of them are uncertain.

Some analysts believe that the decline in retail sales data is due to the recent decline in the Canadian dollar and the fact that retail sales are seasonal. Retail sales are lower during the winter months when more Americans go shopping. The stronger Canadian dollar means that Canadian consumers are able to purchase U.S. dollar and vice versa.

There are some reports from the retail industry that retail sales are rising due to an increase in demand and not necessarily from increased supply. Retail sales in December are expected to rise for several reasons and may remain relatively flat this year.

Regardless of whether retail sales data is increasing due to increased supply or demand, we believe the outlook for retail sales is still weak due to the lack of confidence in the Canadian economy and the Canadian dollar. As the U.S. dollar strengthens, the Canadian dollar will weaken and the U.S. Dollar/CDN rate will remain at a low level.