USD/CAD 10 minutes
The Bank of Canada's July decision is shifting more decisively toward a rate cut after weak retail sales and PPI numbers today. The market now places a 73% chance of a successive cut.
Retail sales matched estimates of +0.7% for April but the advance report for May showed a decline of 0.6% and the March reading was revised to -0.3% from -0.2%. Add that up and it points to consumer weakness, something also seen in Canadian card data from RBC.
Inflation also appears to be slowing, and today's PPI reading of 0.0% was lower than +0.5% expected. Raw materials also fell by 1.0% during the month (although this follows a 5.3% rise in the previous month).
It is worth noting that the Canadian dollar did not weaken with the Bank of Canada (BOC) reducing the possibility of an increase. This may just be a mix in the FX market and a response to higher oil prices, but I believe the Bank of Canada is behind the curve and the market could eventually welcome the effects of a rate cut as there is still a chance for Macklem to avoid a hard landing.