The data focus in the Americas turns today to Canada. The key releases include July CPI and June retail sales. The market is looking for a drop moderation in retail sales, though headline and core inflation is seen rising in July in annual terms. Also keep in mind that this is last inflation release before the BoC meets on September 7.



Price levels have remained generally upbeat given the recent decline in the exchange rate and rise in shelter costs. Specifically, the annual core inflation index has averaged 2.2% YoY over the past three months, which is a modest uptick from the longer-run trend. That said, the real concern for the BoC is not inflation but growth and activity.



"In this regard soggy retail sales could partially dilute any positive impact from a rise in price levels on CAD. The market expects headline retail sales to moderate to a 0.2% pace in June from 1.0% a month earlier. Seasonality issues could distort the headline release but on the whole Canadian activity data is limping into the September policy meeting", says Credit Agricole.



In May the monthly GDP report disappointed market expectations, contracting 0.2% from a month earlier. That was the fifth consecutive decline and raises concerns (again) about the BoC's optimistic growth outlook. At the same time oil prices nosedived at the start of Q3, increasing the downside risks for the Canadian economy.



"While it remains a close call, the risks of another BoC rate cut by yearend are on the rise. In turn, buying USD/CAD on dips is recommended and look for it to test 1.35 by yearend", added Credi Agricole.