Is Canada bouncing back or stuck in the mud?
We know that the oil-related sectors of the Canadian economy are struggling badly but we don't know if it's spread to the rest of the economy, or if it will.
So far, economic data has shown steady jobs gains, spending and even a climb in non-resource exports. That's laid the foundation for the 2% annualized growth the Bank of Canada expects in the second half of the year after an H1 recession.
A key to those expectations is a resilient consumer. That theory will be tested Wednesday at 1230 GMT (830 am ET) with the release of July retail sales data. StatsCan is slow to release consumer spending data but it remains a top-tier indicator.
Economists generally buy into the BOC thinking that oil-weakness is contained. The consensus estimate is for a 0.5% ex autos following a 0.8% rise in June. The four-month moving average of retail sales ex-autos is a healthy 0.5% m/m.
Estimates range from +0.2% to +0.8%.
At the moment, Canadian dollar traders are largely slaves to oil. After successive 4% price swings on Friday and Monday, prices fell 1.8% today. That's good news for the Canadian dollar but poor risk sentiment kept USD/CAD flat on the day.
On retail sales, I see a consensus that's underappreciating the economics risks. If the numbers are strong, I expect they will be brushed off as a blip before headwinds hit. If they're weak, expect a quick re-think on the resilience of the Canadian economy and a decline in CAD.
