Canadian Retail Sales Miss Forecast
Statistics Canada said Retail Sales rose 1.1% month on month in January after a 0.4% fall in December. The result missed the 1.5% forecast. Retail Sales excluding Autos increased 0.8%, below the 1.2% estimate. December’s ex-autos reading was revised to 0.0% from 0.1%. The data came before the recent rise in Oil prices linked to the war in the Middle East. It still points to weaker domestic demand at the start of the year. The Bank of Canada left its benchmark rate at 2.25% on Wednesday. Governor Tiff Macklem said it is too early to judge how the conflict will affect growth.Policy Divergence And Trading Approach
He also said higher energy prices could reduce household spending power. He noted that sustained Oil gains could lift income from energy exports, as Canada is a net Oil exporter. The Federal Reserve held rates at 3.50%–3.75% on Wednesday. Its dot plot still shows one rate cut in 2026, while inflation forecasts were revised higher. Looking back at this time in 2025, we saw the Canadian Dollar struggle with weak retail sales data, suggesting a slowdown in domestic demand. This happened even as geopolitical tensions were pushing oil prices higher. The usual link between a strong loonie and oil was broken by a flight to the safety of the US Dollar. That trend seems to be continuing into the current quarter. Canada’s most recent inflation reading for February 2026 came in at 2.1%, which is below the Bank of Canada’s forecast and fuels speculation about rate cuts. In contrast, the US just posted a strong services PMI of 54.2, suggesting the American economy remains robust. This creates a clear divergence between the Bank of Canada and the Federal Reserve. We are seeing the interest rate spread between the US and Canada widen, now at 150 basis points, its widest since late 2024. This differential makes holding US Dollars more attractive than Canadian Dollars. For the coming weeks, we should consider strategies that benefit from a rising USD/CAD. Buying call options on USD/CAD with expiry dates in late April or May 2026 offers a defined-risk way to capture potential upside. This allows us to profit if the pair continues its upward trend toward the 1.3850 level. We should also be prepared for increased volatility around upcoming economic data releases. With the Bank of Canada’s next interest rate decision on April 10th and the US non-farm payrolls report before that, a long straddle could be effective. This strategy would profit from a large price move in either direction. It is important to remember the lesson from 2025 about the oil price disconnect. Even with WTI crude currently trading firmly above $95 a barrel, the loonie is failing to gain traction. Geopolitical risk and concerns over global demand are still favoring the US Dollar over commodity-linked currencies. Create your live VT Markets account and start trading now.
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