-Sal Guatieri, senior economist at BMO Capital Markets
The Canadian Dollar was the worst-performing major currency during the last week. On Friday, however, it has received a strong bullish bias from the fundamental data, as retail sales almost doubled analysts' expectations, while inflation surprised markets to the upside. After a 250-pip rally, the USD/CAD pair moved back to 1.1174, falling below weekly R2 and daily S3, clearing the way for a weekly R1 at 1.1152.
Consumer prices advanced 1.1% last month, slowing from 1.5% a month earlier, Statistics Canada said Friday. Despite a deceleration, the reading came above analysts' expectations for a 0.9% gain. Core inflation, which strips out eight volatile, advanced 1.2% over the period after a 1.4% increase in the preceding month, also outpacing a consensus forecast for 1.1%. Additionally, both CPI and core CPI came stronger-than-expected on a monthly basis. Also Friday Statistics Canada said retail sales soared 1.3% in January on the back of higher car sales.
The latest figures confirmed that inflation remains weak and thus, is still a risk factor for the Bank of Canada. While inflation and retail sales ease some of the pressure, the central bank will maintain is cautious approach, as inflation remains around the Bank of Canada bottom range.
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