Dollar falls to weakest close since March

Thu Jun 12, 2008 5:20pm EDT
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By Frank Pingue

TORONTO (Reuters) - Canada's dollar closed at its weakest in more than two months against its U.S. counterpart on Thursday as the greenback gathered steam after a report showed retail sales in the United States were stronger than expected.

Domestic bond prices, with no Canadian data to consider, ended the session lower across the curve alongside the bigger U.S. Treasury market as dealers braced for U.S. consumer prices data on Friday that could top expectations and fan concerns about inflation.

The Canadian dollar closed at C$1.0232 to the U.S. dollar, or 97.73 U.S. cents, down from C$1.0200 to the U.S. dollar, or 98.04 U.S. cents, at Wednesday's close.

The currency's lower close put an end to a two-session rising streak that began after the Bank of Canada went against market expectations for a rate cut and left its key overnight rate steady at 3.00 percent.

But the slide in the Canadian dollar was due more to a rally in the greenback than homegrown concerns as U.S. retail sales data topped estimates and gave U.S. Federal Reserve more latitude to hike interest rates to stem inflation.

"The stronger-than-expected U.S. retail sales release this morning provides a positive light towards the U.S. economy," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco. "So on the back of that the market is just growing in confidence and the U.S. dollar received a boost across the board."

Despite closing at its lowest since March 31, the Canadian dollar did manage to rally 0.5 percent from a session low of C$1.0280 to the U.S. dollar, or 97.28 U.S. cents, which it hit moments after the retail data was released early in the North American session.

Helping the commodity-linked Canadian dollar bounce off its session low was a rise in oil prices, which tend to help the currency since Canada is a key exporter of oil.   Continued...