CANADA FX DEBT-C$ ends volatile session lower, bonds firm

Wed Sep 22, 2010 5:07pm EDT
 
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   * Canada July retail sales slip unexpectedly
 * Oil price turnaround pressures C$
 * C$ falls to 97.11 U.S. cents, bonds remain firm
 (Updates to close)
 By Ka Yan Ng
 TORONTO, Sept 22 (Reuters) - The Canadian dollar slid
against the U.S. currency on Wednesday, pressured by a falling
oil price and renewed fears that the domestic economy is
stumbling after disappointing retail sales data.
 Data showed Canadian retail sales dropped unexpectedly in
July, the fourth straight month of flat or declining sales. The
slide suggested the consumer is no longer one of the main
drivers of the recovery and the data could give the Bank of
Canada another reason to take a break from raising interest
rates.
 A rising oil price had earlier wiped out the currency's
data-related losses, but oil became a dampening factor after
inventory data showed a rise in crude and oil product stocks
and prices fell. [O/R]
 The Canadian dollar swung in a wide range, hitting a
six-week high and a 1-1/2 week low during the overnight and
morning sessions, rising on euphoria from the U.S. Federal
Reserve's pledge to stand ready to help the economy if needed,
and falling on the Canadian retail data.
  The Canadian dollar CAD=D3 finished at C$1.0298 to the
U.S. dollar, or 97.11 U.S. cents, down from Tuesday's finish at
C$1.0268 to the U.S. dollar, or 97.39 U.S. cents.
  In the overnight session it hit a six-week high of
C$1.0191 to the U.S. dollar, or 98.13 U.S. cents.
 "The Canadian dollar rally ended rather abruptly," said
Michael O'Neill, managing director at Knightsbridge Foreign
Exchange.
 "It failed spectacularly at C$1.02 in part because of (an)
option barrier being defended. Disappointing retail sales data
added to the sentiment and widespread selling of Canada against
the crosses."
 Statistics Canada said total retail sales in July edged 0.1
percent lower, instead of the 0.6 percent rise expected by the
market. The June retail sales figure was also revised lower to
show a flat reading versus the 0.1 percent gain Statscan
initially estimated. [ID:nN22229778]
 "Overall, it was just a very soft data release and it
followed already two other weak data releases for July --
wholesale sales and manufacturing sales," said Matthew Strauss,
senior currency strategist at RBC Capital Markets.
 "July is setting up to be a quite disappointing month and
next week's GDP numbers will probably confirm that it's a
pretty slow start to the third quarter."
 The retail figures prompted market players to further price
out chances of more hikes by the Bank of Canada, providing a
boost to government bond prices.
 Market pricing, as measured by a Reuters calculation of
yield on overnight index swaps, indicated about a 76 percent
likelihood of no change in interest rates at the Bank of
Canada's policy-decision date next month, up from around 64
percent on Tuesday afternoon. BOCWATCH
 The two-year government of Canada bond added 7 Canadian
cents to yield 1.423 percent, while the 10-year bond gained 23
Canadian cents to yield 2.871 percent.
 No more Canadian data is due for release this week, which
puts market focus squarely on Thursday's figures for U.S.
existing-home sales and the leading indicator, both for August,
and the weekly jobless claims.
 (Reporting by Ka Yan Ng; editing by Peter Galloway)