CANADA FX DEBT-C$ firms as strong retail data buoys sentiment

Fri Jan 21, 2011 5:37pm EST
 
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 * C$ rises as high as C$0.9912, or $1.0089
 * C$ finished at C$0.9954, or $1.0046
 * Retail sales rise 1.3 percent
 (Adds details, comment)
 By Solarina Ho
 TORONTO, Jan 21 (Reuters) - The Canadian dollar
strengthened against the greenback on Friday as unexpectedly
strong Canadian retail sales data increased optimism about the
outlook for economic growth.
 The report, along with other recent data, stood in contrast
to signals from the Bank of Canada earlier this week that
sluggish growth and the strong Canadian dollar could keep
interest rates on hold for longer than markets had expected.
[ID:nN18290983]
 "The relief today for the Canada bulls -- and there's still
plenty of Canada bulls out there -- was the good retail sales
number this morning ... it's not all doom and gloom for the
currency," said Scotia Capital's Steve Butler, director of
foreign exchange trading.
 The currency CAD=D4 finished at C$0.9954 to the U.S.
dollar, or $1.0046, firming from its C$0.9971, or C$1.0029
North American close on Thursday. It rose as high as C$0.9909
after the release of the data.
 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,"
said Doug Porter, deputy chief economist at BMO Capital
Markets.
 "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."
 Healthy wholesale trade data and a gain in the composite
leading indicator on Thursday also buoyed views that Canada's
fourth-quarter gross domestic product report could be stronger
than predicted. [ID:nN2083816]
 Porter said that while the retails sales report does put a
slightly rosier glow on the economy, he doesn't think it would
be enough to really change the Bank of Canada's outlook.
 A series of strong data would typically prompt a central
bank to move forward interest rate hikes. Higher rates tend to
support currencies by attracting capital flows.
 The Canadian dollar eased from the session high following a
retreat in Toronto equities and commodity prices. And U.S.
crude oil prices slipped as rising inventory had investors
concerned that more stock builds could be coming. [O/R]
[MKTS/GLOB] [.TO]
 Butler said the next resistance levels for the Canadian
dollar will be found around C$0.9880 to C$0.9890, followed by a
range of C$0.9820 to C$0.9830. Support for the commodity-linked
currency is seen around C$1.0040.
 "We failed to get through 99 cents today, which was a
little bit of a disappointment," said Butler.
 "It did help to reinforce the market that even though the
Bank of Canada is concerned about some aspect of the Canadian
economy ... the data still points to some positive things."
 Next week, the U.S. Federal Reserve's interest rate
decision will be in focus, along with Canadian inflation data
due out Jan 25. [ID:nN21220619]
 Canadian bond prices were weaker across the curve as some
investors lost interest in safe-haven debt. The two-year bond
CA2YT=RR was down half a Canadian cent to yield 1.726
percent, while the 10-year bond CA10YT=RR was off 18 Canadian
cents to yield 3.328 percent.
 (Editing by Jeffrey Hodgson)