March 12, 2009 / 2:21 PM / 9 years ago

CANADA FX DEBT-C$ off low, bonds fall after US retail data

* C$ weakens but off low after U.S. retail report

* Bonds fall on better than expected U.S. retail numbers

* Market focus on Friday’s Canadian trade, employment data

TORONTO, March 12 (Reuters) - The Canadian dollar weakened against the U.S. dollar on Thursday morning but moved off session lows after a better-than-expected U.S. retail sales report improved market confidence.

Total U.S. retail sales eased 0.1 percent in February after rising by a revised 1.8 percent in January, previously reported as a 1.0 percent increase. Excluding motor vehicles and parts, sales increased 0.7 percent in February. [ID:nN11282880]

Analysts polled by Reuters had forecast February retail sales would fall by 0.5 percent. Excluding motor vehicles, the forecast was for a 0.2 percent fall.

At 9:45 a.m. (1345 GMT), the currency was at C$1.2890 to the U.S. dollar, or 77.58 U.S. cents, down from C$1.2862 to the U.S. dollar, or 77.75 U.S. cents, at Wednesday’s close.

Overnight, the Canadian dollar pushed as low as C$1.2957 to the U.S. dollar, or 77.18 U.S. cents, but recovered as the price of oil headed nearly 3 percent higher to above $43 a barrel. Oil is a key Canadian export and the Canadian currency often tracks its movements.

“The Canadian dollar has had a few big swings in the past 24 hours but on net it hasn’t changed a lot. It started today on a weak footing but it made a comeback after the better than expected U.S. retail sales report,” said Doug Porter, deputy chief economist at BMO Capital Markets.

The U.S. retail report offered cautious optimism, giving a small lift to equity market futures. That, in turn, helped the Canadian dollar edge higher on improved risk appetite.

The currency, however, is likely to remain range-bound ahead of the release of top-tier monthly statistics -- jobs and trade -- on Friday.

“I don’t think the Canadian dollar is going to stray too, too far ahead of the major numbers for the week for Canada tomorrow,” said Porter, who expects the jobs data to show another “heavy duty” decline.

A Reuters survey found that analysts expect the economy to have shed 52,500 jobs in February after a drop of 129,000 jobs in January, while trade data for January is expected to show Canada’s trade deficit more than doubled to C$1 billion.

BONDS DIP

Canadian bond prices were lower on Thursday after the U.S. retail data was not as weak as expected.

With little Canadian economic news so far this week, Canadian government debt has turned to global news for direction. Friday’s Canadian monthly jobs and trade data remain the major risk.

“I think the market is already assuming a weak report tomorrow especially when Finance Minister (Jim) Flaherty says the news is not going to be good. The market is more or less braced for a bad number,” Porter said.

The two-year bond was off 1 Canadian cent at C$102.97 to yield 0.996 percent. The 10-year bond fell 20 Canadian cents to C$107.10 to yield 2.939 percent.

The 30-year bond eased 10 Canadian cents to C$123.25 to yield 3.670 percent. The U.S. 30-year bond yielded 3.657 percent. (Reporting by Ka Yan Ng; Editing by Peter Galloway)

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