TORONTO (Reuters) - The Canadian dollar climbed against a generally weaker U.S. dollar on Tuesday morning as retail sales data from south of the border missed expectations and weighed on the greenback.
Domestic bond prices, with no Canadian economic data to consider, took their cue from the bigger U.S. treasury market and were higher across the curve as the data maintained calls for a U.S. Federal Reserve rate cut.
At 9:25 a.m., the Canadian dollar was at 98.50 U.S. cents, valuing a U.S. dollar at C$1.0152, up from 98.22 U.S. cents, or C$1.0181, at Monday’s close.
But the Canadian currency was off the earlier high of 98.77 U.S. cents it hit ahead of the retail sales data given the close link between Canadian exports and U.S. demand.
“Anything that reflects poorly on U.S. domestic demand is going to reflect poorly on Canadian exports, and as a result of that is going to be reflected in potential weakness in the Canadian dollar,” said David Watt, senior currency strategist at RBC Capital Markets.
Watt also suggested the retail sales data didn’t spark a bigger Canadian dollar gain since retailers will still be able to register sales as people redeem gift cards in the new year.
The rise in the Canadian dollar helped it reclaim a portion of the 1.8 percent slide suffered last week when a string of domestic data all but locked in a Bank of Canada rate cut.
The Bank of Canada is widely expected to cut its key rate by 25 basis points to 4.00 percent when it next sets monetary policy on January 22.
And with no key economic reports due out in Canada for the rest of the week, the commodity-linked Canadian currency’s performance will likely be dictated by oil and gold prices and the U.S. dollar.
“I think (the Canadian dollar) gets tossed around by the external factors,” said Doug Porter, deputy chief economist at BMO Capital Markets. “And unless commodity prices have a big breakout higher, I think the Canadian dollar is likely to underperform versus the other major currencies.”
Canadian bond prices followed U.S. treasuries higher as the U.S. retail sales report fanned concerns about what impact a U.S. economic slowdown could have on consumer spending.
Another piece of U.S. data showed producer prices fell 0.1 percent in December, missing estimates for a 0.2 percent gain.
“There were really no big surprises from the U.S. data but in general they were modestly positive for the bond market,” said Porter. “They weren’t a disaster but they were on the weak side for probably the most important month of the year and it puts a punctuation mark on just how soft the consumer is.”
The overnight Canadian Libor rate was at 4.3250, percent, up from 4.2500 percent on Monday.
Monday’s CORRA rate was 4.2575 percent. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.
The two-year bond was up 2 Canadian cents at C$101.82 to yield 3.237 percent. The 10-year bond was up 25 Canadian cents at C$101.77 to yield 3.774 percent.
The yield spread between the two-year and 10-year bond was 51.7 basis points, down from 55.4 at the previous close.
The 30-year bond was up 48 Canadian cents at C$116.67 to yield 4.027 percent. In the United States, the 30-year treasury yielded 4.305 percent.
The three-month when-issued T-bill yielded 3.63 percent, down from 3.65 percent at the previous close.
Editing by Bernadette Baum