Home > Strong Canadian Retail Sales Data Fuel CAD’s Rally

Strong Canadian Retail Sales Data Fuel CAD’s Rally

August 25, 2020 By Mircea Vasiu

Another V-shape chart making the rounds comes from the Canadian June Retail Sales data. It bounced strongly, up 23.7% MoM, showing a consumer willing to spend again and triggering hopes of further upside potential. 

What is even more important is the June data exceeded February retail sales volume. In other words, Retail Sales, a critical economic indicator for any economy, is back above pre-pandemic levels.

Details of the June 2020 Canadian Retail Sales and the Effect on the CAD Pairs

The consumer is in the driving seat on economic recovery. If the consumer does not spend, the economic recovery has a hard time happening.

For example, businesses used to a certain level of sales try to forecast their cash flow. Businesses use working capital management tools to forecast sales and to determine the need for cash or to reinvest the additional cash. But to do that, they need reliable consumer behavior. Say, a company exporting sun cream is likely to have the bulk of its sales during summer and not winter. But if the consumer is not spending, the inventories become a drag for the wholesaler. Production will decrease and, if nothing changes, jobs will be lost.

But if the consumer is not reluctant and starts spending, the economy picks up slowly but surely. Timidly at first, but more convincing afterward.

Surely, these are unusual circumstances. For example, one of the sub sectors that experienced the largest increase in June was the motor vehicles and parts dealers. Sales were up 53.4% in this particular subsector, but we should interpret the data with a grain of salt. More precisely, the sharp rise is explained by pent-up demand following closure during the spring months.

All in all, a solid report from Canada, one of the world’s most developed economies. If the trend is seen in other parts of the world, it is a good sign for the global economy.

The Canadian Dollar (CAD) continued its appreciation. It is currently on a strong trend higher against the USD, but that is not necessarily due to better than expected data out of Canada. Instead, it has much to do with the USD decline across the dashboard.

However, sometimes such positive news like the Retail Sales in Canada pushes a pair to the extreme. On the news, the USDCAD made a new low, as investors celebrated the positive developments seen in the Canadian economy.