* Sharp drop ends rally that started in early 2009
* March’s rise accentuated April drop - Statscan
* Market still largely anticipates July rate hike (Adds details, quotes)
OTTAWA, June 23 (Reuters) - Canadian retail sales in April dropped by a much sharper than expected 2.0 percent from March, but analysts cautioned against drawing too many conclusions, saying the retreat could well be a one-off.
The median forecast in a Reuters poll was for a 0.4 percent drop in the value of retail sales. Statistics Canada revised March’s month-on-month gain to 2.2 percent from an initial 2.1 percent.
A Statscan analyst said one of the reasons sales dropped off so sharply in April was because they had risen so quickly in March, when unusually good weather persuaded Canadians to make purchases earlier than planned.
“One month does not make a trend ... Canadian retail sales are expected to remain on the upward trend in the months ahead, on positive momentum in underlying fundamentals,” said Derek Holt and Gorica Djeric of Scotia Capital in a note to clients.
Several analysts said they expected the Bank of Canada to press ahead with its second rate hike in two months on July 20, despite the gloomy April figures.
Ten of the 11 retail sectors posted losses in April, ending for now an upward trend in sales that had started in early 2009. Sales in volume terms dropped by 1.9 percent.
April sales at motor vehicles and parts dealers dropped by 4.8 percent, which included a 5.3 fall in sales of new vehicles. Excluding the auto sector, sales dropped 1.2 percent.
“We don’t think this is the beginning of weakness going forward. In fact, if anything, this perhaps can be seen as a bit of a blip on what we expect to be a fairly sustained economic recovery in Canada, powered in large by consumer spending,” said Millan Mulraine of TD Securities.
The news helped push the Canadian dollar down to a two-week low. At 8:55 a.m. (1255 GMT), it was at C$1.0369 to the U.S. dollar, or 96.44 U.S. cents, down from C$1.0291 to the U.S. dollar, or 97.17 U.S. cents, at Tuesday’s close.
Later, after Bank of Canada Governor Mark Carney told Reuters he was closely watching the strength of the Canadian dollar, the currency sank further, and by 10:45 a.m. it was at C$1.0436 to the U.S. dollar, or 95.82 U.S. cents.
Yields on overnight index swaps, which trade based on expectations for the central bank’s key policy rate, now suggest there is a 73.25 percent chance of a 25 basis point hike on July 20. That is down from 80 percent on Tuesday.
Statscan said gasoline sales were down by 2.0 percent after recording increases for the previous 11 months, while clothing and clothing accessories stores saw their sales decrease by 5.2 percent from March.
Douglas Porter of BMO Capital Markets Economics said that while the April figures appeared “to be a simple case of a reversal of the weather-related jump in the prior month, the fact is that the days of easy gains are over for spending”.
He added: “We continue to lean towards a July rate hike by the bank, but cooler domestic demand may yet open the door to a temporary pause later on.” (Additional reporting by Ka Yan Ng in Toronto; Editing by Mario Di Simine and Rob Wilson)
Our Standards: The Thomson Reuters Trust Principles.