On Friday, Statistics Canada said that Canadian retail sales dropped more than expected in July, though they likely rebounded slightly in August. Data released by Statistics Canada indicated that interest rate hike by the Bank of Canada is slowing consumer spending.

As per the data, retail sales declined 2.5 per cent in July, the first fall in seven months and missing forecasts of a 2.0 per cent slump. Lower gasoline prices drove the decline, but sales volumes were also down 2.0 per cent.

Earlier in September, the Bank of Canada hiked its policy rate by 75 basis points to 3.25 per cent and held that more increases would be needed. It has so far increased by 300 basis points in just six months.

It is suggested that while consumers are clearly pulling back on expenditure, demand is still outpacing supply in the Canadian economy. The Bank of Canada is required to forge ahead with more rate hikes. It is estimated that a 50 basis points move in October is going to be the final increase of this cycle.

Money markets have priced in a 50bp hike in October. High odds of one more 25 basis points move to bring the rate to 4 per cent by year-end. The Canadian dollar was trading 0.3 per cent lower at 1.3528 to the greenback, or 73.92 US cents.