Canadian Dollar Declines On Weak Retail Sales Growth

Canadian Dollar Declines On Weak Retail Sales Growth
June 24, 2019


The Canadian dollar declined sharply against its G10 rivals on Friday due to a slowdown in domestic retail sales growth in April. In particular, the loonie plunged against the euro on upbeat manufacturing and service PMI data from the Eurozone. From a low of 1.4880, the EUR/CAD pair rose to a high of 1.5025 before closing at 1.5015.

Data from Statistics Canada indicated that retail sales increased for the third successive month, although at a slower rate in April. Retail sales inched up 0.1% month-on-month in April, following an upwardly revised 1.8% rise in the earlier month. Analysts had forecast sales to grow at 0.3%.

Core retail sales, barring automobile parts grew 0.1% m-o-m, after an upwardly revised 1.3% gain in March. Economists had anticipated core retail sales to increase by 0.6% on the m-o-m increase.

In the meantime, crude prices continued to rise after President Donald Trump authorized military strikes on Iran in response to shooting down of a US drone. Even though Trump called off strikes at the last minute, heightened tensions kept demand for crude oil higher.  While WTI crude gained $0.36 or 0.63% to close at $57.43, Brent crude gained $0.69 or 1.08% to close at $64.45. Still, the loonie was unable to capitalize on the crude oil rally as the manufacturing and PMI data from the Eurozone was better than expected.

In Europe, the IHS Markit reported an increase in flash services Purchasing Managers’ Index (PMI) to 55.6, from 55.4 in May. The reported figure represents a two month high. The services sector has been playing a vital role in ensuring growth in Germany while manufacturing has contracted, mainly due to trade issues and Brexit uncertainty.

IHS Markit also reported that the German manufacturing PMI recorded a four-month high of 45.4 in June, an increase from 44.3 in May, signaling a possible end to the decline instead of a return to growth.

Commenting on the German service sector, Trevor Balchin, Economics Director at IHS Markit, said: “Service sector growth remains above-trend and although the manufacturing downturn continued into June, there are tentative signs that the worst has passed.”

In the Eurozone, manufacturing sector activity continued to improve in June, as per the latest manufacturing activity data published by IHS/Markit research. The Eurozone manufacturing purchasing managers index (PMI) recorded two-month highs of 47.8 in June, up from 47.7 in the earlier month, but missed economists forecast of 48.0. Likewise, services PMI grew sharply to 7-month high of 53.4, versus 52.9 anticipated by analysts and higher than 52.9 posted last month.

The slowdown in retail sales is expected to keep the Canadian dollar slightly bearish against the Euro in the days ahead.

Technically, the EUR/CAD pair has rebounded after testing the support level of 1.4905. The next major resistance is anticipated only at 1.5060. Furthermore, the momentum indicator is making new highs. As a result, we can expect the currency pair to remain bullish in the near-term.

EUR - technical analysis - 24th June 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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