Loonie declines after disappointing retail sales

The Canadian dollar has slumped to its weakest level against its American counterpart today in six weeks following a report showing a bigger drop in retail sales than had been forecast.

By mid-afternoon in New York, USD/CAD had risen 0.5% to 1.0526, the fifth trading day in a row in which the currency pair has advanced, its longest such streak in nearly two months.

The slide in the strength of the Canadian currency came after Statistics Canada revealed that retail sales dropped 0.6% in June after a 1.8% rise in May. June had been blighted by floods in Alberta and construction striking in Quebec, leading analysts to forecast a fall of 0.4%, but the result was even worse than expected, with a big dip being seen also in Ontario.

Volume of sales plummeted 1.2%, seasonally adjusted, pointing to softer GDP in the second quarter. The data follows other disappointing indicators this month, including a 2.8% drop in Wholesale trade. Official Canadian GDP data is released next week.

Today’s decline in the Loonie follows a general slide in risk assets yesterday following the publication of the minutes from the last FOMC meeting, which revealed committee members were broadly comfortable with the idea of scaling back stimulus later this year. The lack of any further clarity in the minutes has heightened uncertainty, which has hurt risk appetite.

The Bank of Canada has maintained its benchmark rate at 1% for close to three years in order to support the economy, but has sustained a tightening bias for a prolonged period. The weakness in today’s retail sales suggest the central bank will not be tightening in the near term, however.

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