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Canadian Retail Sales Climb, Supporting Bank of Canada Hawks

by Matt Eidinger | November 19, 2021

An advance reading for Canadian October retail sales points to a 1 percent rise and gives reason to believe in the strength of the consumer as we move into the holiday season. The estimate, compiled by Statistics Canada, would mark the largest monthly increase since August’s 2.1 percent jump.

Seasonally-adjusted figures for September were also reported, indicating a monthly drop of -0.6 percent to $56.6 billion Canadian dollars – better than the -1.7 percent decline previously estimated. Looking under the hood, 7 out of 11 retail subsectors – comprising nearly two thirds of total retail activity – were down last month. The primary drivers of September’s decline were motor vehicles (-1.6 percent), clothing (-5.9 percent) as well as health and personal care (-0.5 percent). Unsurprisingly, gains of 0.2 percent were posted by gasoline stations in September, bringing the year-over-year increase to nearly 27 percent.

Before the release, markets were betting that the first interest rate hike in Canada would come in early March 2022 and overnight index swap rates are still assigning nearly a 75 percent probability to this outcome as we go to pixels. At the last Bank of Canada meeting, policymakers abruptly ended their asset purchase program, and signaled rate hikes to come in mid-2022. That was followed by this week’s surprisingly hawkish opinion piece in the Financial Times from Governor Tiff Macklem, in which he said the central bank “will not raise interest rates until economic slack is absorbed. We are not there yet, but we are getting closer.”

The Canadian dollar is up less than 0.1 percent against the US dollar and remains on the defensive. The exchange rate has fallen for most of the last week, with weaker oil prices outweighing an increasingly hawkish monetary policy outlook. After a 50-basis point drop in overnight markets, the loonie is now trading at its lowest levels against the greenback in nearly two months.

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