January 14, 2009 / 3:35 PM / 9 years ago

CANADA FX DEBT-C$ weakens on U.S. retail sales, lower oil

* C$ falls as U.S. retail sales drop more than expected

* Bonds rise on economic data and lower stocks

By Jennifer Kwan

TORONTO, Jan 14 (Reuters) - The Canadian dollar weakened against the U.S. currency on Wednesday, pressured by lower oil prices as well as by dour U.S. retail sales data that highlighted the growing impact the grim economic environment is having on consumer demand.

At 10:02 a.m. (1502 GMT), the Canadian currency was at C$1.2370 to the U.S. dollar, or 80.84 U.S. cents, down from C$1.2248 to the U.S. dollar, or 81.65 U.S. cents, on Tuesday.

U.S. government data showed sales at U.S. retailers fell more than expected in December as the economic downturn spurred consumers to cut back on spending. [ID:nN13410674]

“The report highlights a risk of an even deeper U.S. recession, which spurs risk aversion trades. It has tended to support the greenback and weighs especially on commodity-based currencies,” said Sal Guatieri, senior economist at BMO Capital Markets.

The price of oil CLc1 fell to below $38 a barrel, erasing early gains following the retail sales report [ID:nLE263762], while gold and most base metals weakened. [ID:nLE412902]

“Softer commodity prices will undoubtedly weigh on our currency. That’s been a theme for several months now ever since commodities collapsed,” Guatieri said.

Canada is a major oil producer and exporter, and movements in the price of crude often sway the Canadian currency. Oil has fallen from a peak price above $147 a barrel reached last July.

Figures on Tuesday that showed a big drop in Canada’s trade surplus had a hand in pressuring the Canadian dollar, as did Bank of Canada surveys earlier this week that showed tightening lending conditions and poor business conditions.

BONDS HIGHER

Canadian bond prices were higher as investors digested the weak retail data and as Toronto’s main stock index .GSPTSE shed more than 2 percent.

The developments that are weakening the Canadian currency are giving bond prices a boost, Guatieri said.

“The weak U.S. retail sales report is spurring flight into government securities,” he said.

The two-year bond was rose 5 Canadian cents at C$103.28 to yield 0.979 percent, while the 10-year bond rose 95 Canadian cents to C$113.50 to yield 2.615 percent.

The yield spread between the two-year and 10-year bond was at 176 basis points, versus at 170 basis points at the previous close.

The 30-year bond climbed C$1.95 to yield 3.471 percent. In the United States, the 30-year Treasury yielded 2.930 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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