Canadian Retail Sales Fuel a Rise in Loonie

08/25/2009 12:01 am EST

Focus: FOREX

Boris Schlossberg

Managing Director of FX Strategy and Co-Founder of BKForex LLC, BK Asset Management

Canadian retail sales increased at a much faster pace than forecast, rising 1.0% versus projections of only a 0.2% gain. Ex-auto sales also rose 1.0% versus expectations of a 0.4% increase. This was the fifth month of expansion out of the past six, suggesting that consumer demand in the Canadian economy has stabilized.

Six out of the eight sectors tracked by Statistics Canada enjoyed a rise in sales, with only general merchandise and home supplies retailers suffering losses. Although the gains were broad-based, they were skewed by a massive 4.7% jump in gasoline sales, suggesting that while demand has turned positive, it nevertheless remains relatively anemic.

The Canadian dollar (the one-dollar coin is commonly called a Loonie) jumped on the news with USD/CAD breaking below the 1.0750 level in post reaction trading. The Loonie has been a strong beneficiary of higher crude prices, which are currently hovering near the $75 per barrel level. Should crude remain at these elevated levels or even push higher, the Canadian economy will see its income expand, which in turn will drive growth higher. For the time being, the Loonie remains well bid and if crude breaks the $75 per barrel barrier in NYMEX trading, USD/CAD could test the 1.0700 level as the day progresses.

By Boris Schlossberg of GFTForex.com

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