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Forex Market Shrugs Off Soft US Retail and Canadian Inflation Data

Don Curren May 15, 2019

A disappointing reading on US retail sales in April failed to have much impact on the “Big Dollar” Wednesday morning, with markets likely taking the view the sector’s weakness in that month was something of a temporary aberration and noting it was preceded by a robust showing in March.

The US Census Bureau’s advance estimates of U.S. retail and food services sales for April 2019, adjusted for seasonal variation and holiday and trading-day differences, were $513.4 billion, a decrease of 0.2% from the previous month, but 3.1% above April 2018.

Economists believed monthly retail sales growth would moderate to 0.2% in April from the 1.7% reported for Marc, which was revised up from 1.6%. That upward revision may have also blunted the retail data’s impact on the US currency.

The retail sales control group, which excludes food services, car dealers, building-materials stores and gasoline stations, was flat. It also disappointed in terms of consensus expectations, which had called for an increase of 0.3%.

The data won’t likely have a significant impact on expectations that the US Federal Reserve hold its target range for the federal funds rate at the 2.25% to 2.50% into the foreseeable future.

As is often the case, the Bank of Canada has settled into essentially the same monetary policy posture as the Fed, taking a neutral stance after terminating its tightening program last month after having increased its policy rate by 25 basis five times to 1.75% since mid-2017.

Also on Wednesday, Statistics Canada reported the all-items Consumer Price Index rose 2.0% – as expected by consensus – on a year-over-year basis in April, following a 1.9% increase in March.

On a seasonally adjusted monthly basis, the CPI rose 0.3% in April, weaker than expectations, which were pegged at 0.4%.

The data were entirely consistent with Canada’s central bank holding steady in the coming months.

StatsCan said the Bank of Canada’s s three measures of core inflation rate slipped a bit in April, with the average dropping to 1.90% in April from 2% in March.

Inflation would have to depart significantly from consensus to prompt a change in the market’s belief that the Bank of Canada will stay on the policy sidelines for the foreseeable future.

The Canadian dollar has been confined to a range trading pattern since April 25, when the US dollar reached the 1.3500 area against its counterpart for the first time since January.

The near-term prospects are for the currency to remain pretty stagnant in the absence of any unexpected shocks – which can never be ruled out in the current environment of trade tensions and volatile asset markets.

Bottom Line: Both US retail sales data and Canada’s April inflation report fell short of expectations on Wednesday, but neither strayed far enough to change expectations of continued neutral policy at the two nations central banks – or to prompt a significant response in currency markets.

Don Curren 
Market Strategist and Content Editor
Twitter: @dbcurren

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