January 21, 2011 / 3:14 PM / 7 years ago

CANADA FX DEBT-C$ rises as retail data boosts confidence

4 Min Read

 * C$ rises as high as C$0.9912, or $1.0089
 * Bond prices weaker across the curve
 * Retail sales rise 1.3 percent
 By Solarina Ho
 TORONTO, Jan 21 (Reuters) - The Canadian dollar strengthened against the greenback on Friday morning as Canadian retail sales data came in stronger than expected.
 At 9:39 a.m. (1439 GMT), the currency CAD=D4 was at C$0.9923 to the U.S. dollar, or $1.0078, firming from C$0.9964 immediately before the data was released. It rose as high as C$0.9912 after the release of the data.
 "The currency does often respond in a big way to retail sales and we found that again today ... It was already firming because of global events. This report is just giving it another big lift," Doug Porter, deputy chief economist at BMO Capital Markets
 November retail sales climbed 1.3 percent versus a forecast of a 0.5 percent increase, with higher auto sales helping the figure to notch its biggest gain since March 2010. It was the sixth consecutive month of retail sales gains. [ID:nN21214058]
 "It was surprisingly upbeat ... it was generalized strength. We also saw an upward revision in the prior month and the gains weren't due to higher prices, it was all in volume," Porter said.
 "Just as it looked like Canadian consumers were starting to wind down, they actually have picked it right back up again. It does set a better tone for November GDP."
 The Canadian dollar was already firmer on Friday before the release of the retail sales figures due to a more upbeat tone in global markets and firmer commodity prices.
 Oil prices rose as renewed market confidence that the European debt crisis would be solved pressured the U.S. dollar lower against the euro and helped spark buying across a range of commodities. Copper reversed some of its losses from Thursday, rising more than 1 percent. [O/R] [MET/L]
 Strong earnings and positive news from General Electric (GE.N) and Google (GOOG.O) also boosted investor optimism. [ID:nLDE70K1GN] [ID:nSGE70K06G]
 "Generally when equity and commodity markets are in a better mood, so too is the Canadian dollar," Porter said.
 Earlier this week, the Bank of Canada signaled that sluggish growth and the strong Canadian dollar could mean keeping interest rates on hold for longer than markets had expected. [ID:nN19215598] [ID:nN18290983]
 Weaker-than-expected Canadian factory sales added to those concerns, but healthy wholesale trade data, a gain in the composite leading indicator on Thursday, and Friday's retail sales have buoyed views that Canada's fourth-quarter gross domestic product report could be stronger than predicted. [ID:nN2083816]
 "One-month retail sales, especially since it's for November, not December is not a game changer," Porter said. "It does put a slightly rosier glow on the economy, but I don't think this would be enough to really change the Bank of Canada's outlook significantly."
 BONDS DOWN
 Canadian bond prices were weaker across the curve as investors lost interest in safe-haven debt. [US/]
 The interest rate-sensitive two-year bond CA2YT=RR was down 3.5 Canadian cent to yield 1.743 percent, while the 10-year bond CA10YT=RR was off 30 Canadian cents to yield 3.343 percent.  (Reporting by Solarina Ho; editing by Peter Galloway)                                                      

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