Drastic drop in retail sales is a concern
Here's the 10,000 view of Canada
- The first half of the year was super-strong
- One set of house-price cooling measures came in April and activity/prices are down substantially in Toronto
- A second set of housing measures were finalized this week, effective Jan 1
- The resource industry is stable but much slower than 5 years ago
- Retail sales were extremely weak in September
- The government is raising some taxes
If you think the first half was skewed, then much of that strength will be reversed in Q3 and beyond.
One economist who thinks that will unfold is David Doyle at Macquarie Capital Markets. He believes the +4.5% growth pace in Q2 means a contraction is coming.
"Increasing evidence of softness in 3Q reinforces our conviction to maximum underweight Canada, particularly its banks and domestic focused consumer stocks," Doyle wrote in a report.
He thinks trade will struggle and the BOC will leave rates at 1.00% for the foreseeable future.
For USD/CAD, if you take out the optimism on growth and the optimism from the BOC, it could be a quick trip back to 1.35, especially if US tax cuts materialize.
