TORONTO (Reuters) - Canada's dollar was little changed against its U.S. counterpart on Tuesday as bright spots contained in a domestic retail sales report were offset by data showing Europe's debt crisis had caused a sharp slowdown in German factory activity.
Canadian retail sales grew by a weaker-than-expected 0.3 percent in May, not enough to make up for the previous month's decline and further proof of lackluster growth in the second quarter, according to Statistics Canada data. But excluding autos, the data came in stronger than expected.
"It was a decent number for Canada, but in the grand scheme of things it's going to get lost in translation," John Curran, senior vice president at CanadianForex, said of the retail sales data.
"It's a positive number. But any good news that stems from that will eventually be negated by the European situation."
At around 9:00 a.m. EDT (1300 GMT), the Canadian dollar was at C$1.0165 versus its U.S. counterpart, or 98.38 U.S. cents, up slightly from Monday's North American session close at C$1.0168 to the greenback, or 98.35 U.S. cents.
Global factors weighed on the currency, strategists said. Data showed the private sector across the whole 17-nation euro area shrank for a sixth straight month in July, mainly due to weakness in manufacturing, putting the region on track to fall back into recession.
The slowdown in German industrial activity was the biggest surprise for market analysts, contracting in July at its fastest pace in three years.
"Europe continues to dominate the market's focus here," said Matt Perrier, director of foreign exchange sales at BMO Capital Markets.
Meanwhile, Spain paid the second-highest yield on short-term debt since the 1999 birth of the euro at a debt auction, reflecting a growing belief that the country will need a full sovereign bailout that the euro zone can barely afford.
Risk assets drew some support from data that showed China's manufacturing output in July grew at its fastest pace in nine months, easing fears of a sharp slowdown in the world's No. 2 economy.
"It's a bit of good news after some disappointing numbers out of China but one number doesn't a trend make, so I think the market is more clearly focused on Europe at this point and concerns over spreads and everything else that's going on there."
Perrier said there was some near-term support for the Canadian dollar around its July 12 low of C$1.0251, and resistance around C$1.0165 to C$1.0135.
Canadian bond prices also drifted lower, mostly underperforming U.S. Treasuries. <US/>
The two-year government bond fell 5 Canadian cents to yield 0.954 percent and the benchmark 10-year bond lost 42 Canadian cents to yield 1.627 percent.
Additional reporting by Claire Sibonney; Editing by James Dalgleish