Canadians continued to spend through August - RBC spending tracker shows
The latest RBC consumer spending tracker indicates that Canadian spending continues to rise, signaling positive economic momentum. Per the full note by Adam Button, discretionary services, particularly in travel, entertainment, and arts, are key drivers of this growth, with core sales showing a notable 1.1% month-over-month increase. Contrastingly, a report from Scotiabank presents a contrasting view, pointing to decelerating trends in consumer goods spending. Traders should monitor this divergence as the next RBC update slated for September 24 could provide further insights.
What the desk is arguing
The RBC spending tracker reveals strong consumer spending trends, particularly in discretionary sectors, suggesting a robust economic outlook for Canada. The data from RBC highlights a 1.1% month-over-month increase in core sales and 6.6% year-over-year growth in discretionary goods, outpacing some other market indicators.
Supporting evidence from RBC shows notable increases in discretionary services, with solid gains noted in travel and entertainment. This broadening of spending categories may signal a positive trend as consumer confidence grows.
However, the alternative read presented by Scotiabank's NielsenIQ data indicates a deceleration in overall consumer goods spending, highlighting the complexities of the current economic landscape in Canada. The contrasting views may signal underlying vulnerabilities in specific sectors despite overall spending growth.
Where it sits in our coverage
As per our FX desk's insights, the consensus target for USD/CAD is currently set at 1.075, with a projected range between 1.04 and 1.12:
This view aligns with jpmorgan, which anticipates a stronger CAD, while diverging from bofa, expecting weakening CAD trends. The desk's positioning may lean towards the upper bound given RBC's positive outlook on consumer spending.
How other firms see it
The majority of aligned firms, including jpmorgan, view the sporadic growth in consumer spending as a positive development for the CAD. In contrast, bofa expresses concerns regarding the broader consumer market slowdown, suggesting a potential shift in momentum.
Traders should also observe the relationship between CAD and the performance of retail sales data, along with any upcoming statements from the Bank of Canada, as these elements could significantly influence market sentiment and price action in CAD pairs.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01RBC spending tracker shows positive growth in Canadian consumer spending.
- 02Discretionary services are leading the increase in spending.
- 03Contrasting data from Scotiabank point to a deceleration in consumer goods spending.
- 04Upcoming RBC update on September 24 could clarify current trends.
Market implications
Watch for USD/CAD movements around the 1.075 level as new consumer spending data is released. Given the variations in spending reports, position adjustments may occur leading up to the next RBC update.
Risks to this view
A significant reversal could occur if upcoming retail sales data from Statistics Canada contradicts the positive trends shown by RBC. Additionally, any shifts in central bank policy or economic forecasts could alter the current spending trajectory.
RBC is just out with its latest Canadian consumer spending tracker, based on its card data. I've found this report to be a good leading indicator for the retail sales report. The next edition is due on September 24.
RBC said spending remained on a positive trajectory with growth broadening across major spending categories. Core sales rose 1.1% m/m, 0.6% m/m on a three-month average and 6.6% y/y (nominally). "Discretionary services continued to lead spending growth, supported by solid gains in travel, entertainment and arts," RBC said. "Discretionary goods spending also improved, while essentials spending remained firm, although gasoline continued to account for an outsized share of the increase." This chart makes a compelling case that travel, entertainment and art are major drivers of spending. I suspect that mirrors the high wealth concentration among Boomers, who are seeing waves of retirements.
A contrast to this report is the latest NielsenIQ Omnishopper update via Scotiabank. It highlights a clear deceleration in spending in Canada and the US. They peg Canadian consumer goods spending up 4.5% y/y, a big contrast with the +6.6% discretionary goods number from RBC.
A possible reconciliation is that RBC cards skew more wealthy, though I'd assume the reports try to adjust for that. NielsenIQ Omnishopper data: Looking further ahead, Scotia forecasts real consumer spending growth up 2.3% this year but falling to 1.8% in 2027. This article was written by Adam Button at investinglive.com.
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