Canada's April Retail Sales Rebound, Eyes Tariffs on Chinese EVs

In April, Canada's retail sales increased, driven by gasoline pump sales, which marked the first rise in this category for the year. This growth reversed a three-month decline, with total sales reaching C$66.80 billion ($48.78 billion).

Preliminary estimates for May suggest a potential 0.6% decline in retail sales. Apart from gasoline, food and beverage sales also contributed significantly, rising by 1.9%. Despite this, motor vehicle and parts sales saw a 2.2% decline. Economists had anticipated April’s rebound due to higher fuel prices, even as consumer spending remains strained by high interest rates.

Meanwhile, Canada is considering tariffs on Chinese-made electric vehicles (EVs) to counter what it sees as unfair competition from China's subsidized industry. This aligns with similar actions by the U.S. and the EU. Finance Minister Chrystia Freeland announced a public consultation period starting July 2 to discuss potential responses. The move comes as China rejects allegations of unfair subsidies, arguing its EV industry's growth is due to technological and market advantages. The decision is part of Canada’s strategy to strengthen its position in the global EV supply chain amid domestic pressures to protect its auto industry.

Bank of Canada Governor Tiff Macklem noted that while some job seekers, particularly younger workers and newcomers, face challenges, there is enough slack in the labor market to support job growth and economic expansion as inflation falls. Macklem suggested that the current economic conditions could help the government manage immigration levels without tightening the labor market excessively. The central bank has seen signs of moderating wage growth and will monitor upcoming inflation data to guide future monetary policy decisions.

In April, the annual Canada inflation rate fell to a three-year low of 2.7%, with four consecutive months below 3%. Core inflation measures also continued to decline. Statistics Canada will release May inflation data on June 25. The Bank of Canada's next monetary policy decision and economic forecast update is scheduled for July 24. Prior to this, money markets predicted a 73% likelihood of a rate cut in July and a total of three 25 basis point cuts by year-end.

In the broader market, the U.S. dollar gained strength ahead of the U.S. personal consumption expenditures (PCE) price index release, a key inflation measure for the Federal Reserve. Investors were also focused on the upcoming U.S. presidential debate between President Joe Biden and former President Donald Trump, as well as the French elections starting this weekend.

A survey by Strategas indicated a shift in clients' expectations regarding Federal Reserve policy. Investors now expect two rate cuts in November and December 2024, instead of September, aligning with Strategas' forecast of two cuts this year but starting earlier in September. Additionally, there is a potential dovish shift in long-term rate expectations, with a reduction of 25 basis points anticipated over the next 36 months, suggesting long-term yields might drop more than initially thought. However, further disinflation evidence is necessary for a more decisive adjustment in long-term expectations. As a result, the Canadian dollar is likely to stabilize within the current range during this period and may weaken slightly due to the United States' comparatively stronger medium-term economic situation.

Data for Technical Analysis (30Min) CFD USD/CAD

Resistance : 1.3653, 1.3655, 1.3657

Support : 1.3649, 1.3647, 1.3645

30Min Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.3644 - 1.3649 is touched, but the support at 1.3649 cannot be broken, the TP may be set around 1.3653 and the SL around 1.3642, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3653 - 1.3658, TP may be set around 1.3664 and SL around 1.3647, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3653 - 1.3658 is touched, but the resistance 1.3653 cannot be broken, the TP may be set around 1.3647 and the SL around 1.3660, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3644 - 1.3649, TP may be set around 1.3640 and SL around 1.3655, or up to the risk appetite.       

Pivot Points Jun 25, 2024 02:39AM GMT

Sources: Investing 1, Investing 2