Retail sales on both sides of the border saw strong gains in October ahead of the holiday shopping season. Those gains come with a caution as higher prices are affecting the dollar value of sales and the US Census Bureau Report doesn’t track volume of sales. The greenback strengthened against most major currencies as markets continue to favour it with the possibility the US Federal Reserve will hike rates sooner than expected. Meanwhile, with markets not seeing motivation for the Bank of Canada to hike rates ahead of expectations, and weak crude oil prices, the loonie lost ground.

Scotiabank economists and analysts weigh in on how economic indicators and trends are influencing retail and currencies right now.



  • Canadian retail sales posted a nice upside surprise with a strong gain in preliminary guidance for October and a smaller contraction in September than initially guided, a bit of good news the markets are so far ignoring. The dollar value of sales in October was up 1% from the previous month following a drop of 0.6% that wasn’t as bad as Statistics Canada had initially guided (-1.7%). However, volumes in September fell 1.1% from a month earlier, so higher prices insulated against some downside to revenues that month. I suspect volumes were up much less than 1% in October as the flash guidance for a 1% nominal rise was probably at least half due to higher prices given the Consumer Price Index (CPI).
  • On a trend basis, retail third-quarter sales volumes were up 6.3% quarter-over-quarter on a seasonally adjusted annual basis and so far they are tracking flat (+0.3%) in the fourth quarter, assuming we should deduct at least half of the guidance for growth in nominal sales during October due to higher prices given what we learned from CPI. We'll need a solid holiday spending season to buoy the rest of Q4.
  • US holiday shopping got off to a roaring start. Strong growth in retail sales is baked into Q4 ahead of the start of the holiday shopping season that starts next week with the US Thanksgiving followed by Black Friday and Cyber Monday sales. Fourth-quarter sales are tracking a gain of 11% quarter-over-quarter in seasonally adjusted terms at an annualized rate. That’s a very strong start to the holiday shopping season based on the third-quarter average and October’s results, while assuming flat readings for November and December only to focus on the effects of what we know so far without adding arbitrary forecast bias. US retail sales are now 21% higher than just before the pandemic. Ditto for sales ex-autos and ex-gas. The retail control group is 23% higher.
  • There are, nevertheless, two important caveats. The smaller caveat is that the US Census Bureau report on retail measures the change in the value of sales not volumes, unlike the convention in other markets such as the UK, Germany, and Canada where both nominal and real figures are provided in the same report. Based on last week’s CPI figures, the retail sales volume gain was likely under 1% month-over-month, which is still solid. The bigger caution is that we can’t tell, to what extent spending at retailers rotated away from higher contact services back toward retail. We can see restaurant sales were flat last month (eating/drinking 0% m/m), but most other services are not captured in this report.

 —  Derek Holt, Vice-President and Head of Capital Markets Economics 

Foreign Exchange

  • The US dollar strengthened this week against nearly all major currencies as markets continue to favour it with the possibility that the US Federal Reserve hikes rates sooner than expected. Solid jobs and elevated inflation data released in recent weeks have put pressure on the Fed to counteract runaway inflation expectations as the country’s economic recovery gathers momentum following the September/October delta wave. Market activity will likely be subdued next week heading into the US Thanksgiving holiday.
  • We think the USD is on track for further gains against the euro, yen, and Swiss Franc, whose central banks are unlikely to raise rates sooner than late-2023. In the meantime, currencies such as the Canadian and New Zealand dollars, and the British pound should benefit from relatively more hawkish policy settings in the short run. The GBP led the majors this week thanks to a solid increase in payrolls and a strong Consumer Price Index (CPI) print for October (with inflation rising to its highest in about a decade) that increase the chance the Bank of England begins its tightening cycle next month — after its policy hold in early-November suggested they may wait until February. 
  • The Canadian dollar, meanwhile, depreciated this week to its weakest level since early-October as Wednesday’s CPI data met economists’ expectations but perhaps disappointed markets hoping for a higher inflation print that could motivate the Bank of Canada (BoC) to increase rates as early as March. Weak crude oil prices amid rising contagions in Europe, as well as a push from the White House for countries to release petroleum from their reserves contributed to CAD weakness. The BoC policy outlook nevertheless continued to support the CAD since last Friday to outperform most of its commodity/high-beta peers.

—  Shaun Osborne, Managing Director, Chief FX Strategist, and Juan Manuel Herrera, FX Strategist 


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