Canadian Loonie Extends Losses Amid Falling Retail Sales, Rising US Dollar

The Canadian dollar further weakened against its US counterpart to finish the trading week as the greenback surged and disappointing data weighed on the loonie. The last time the gap was this immense was in the early stages of the coronavirus pandemic.

According to Statistics Canada, retail sales fell 2.5% in July, down from the 1% gain in June, to $61.3 billion. The decline was also larger than the market estimate of -2%. This represented the first decline since December 201, with sales falling in nine of the 11 subsectors, led by losses in gasoline, apparel, electronics, and appliance stores.

On an annualized basis, retail sales have climbed 8%.

Retail sales excluding automobiles worsened to -3.1% in July, nearly double economists’ expectations of -1.2%.

“This retail sales report was unambiguously weak, suggesting that consumers tightened their purse strings in July,” TD Bank economist Ksenia Bushmeneva said of the numbers. “Consumer demand appears to have broadly cooled across most categories of spending.”

“All in all, given the triple headwinds emanating from higher consumer prices, rapidly rising interest rates and a drop in wealth, consumers are becoming more frugal,” she added.

Moreover, manufacturing sales fell 1.8% last month, double the market forecast of -0.9%.

Earlier this week, the August annual inflation rate came in at 7%, down from 7.6% in July. The core inflation rate, which eliminates the volatile food and energy sectors, also fell to 5.8% on a year-over-year basis last month.

In addition, new housing prices eased to an annualized rate of 6.9% in August, down from 7.5% in July.

The Canadian bond market was mostly red across the board, with the benchmark ten-year yield down 6.7 basis points to 3.061%. The one-month bill shed three basis points to 3.1%, while the 30-year bond shed six basis points to 2.949%.

Year-to-date, the Canadian dollar has declined more than 7.3% against the greenback.

The USD/CAD currency pair advanced 0.65% to 1.3575, from an opening of 1.3487, at 16:52 GMT on Friday. The EUR/CAD tumbled 0.48% to 1.3201, from an opening of 1.3265.

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