Dollar drops on retail sales; bonds ease

Tue Jul 22, 2008 5:11pm EDT
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By Lynne Olver

TORONTO (Reuters) - The Canadian dollar fell 0.7 percent against the U.S. dollar on Tuesday on weaker-than-expected retail sales data for May and a widespread rally in the greenback against major currencies.

Canadian bond prices rose initially, but later followed the U.S. fixed income market lower after hawkish inflation comments from a U.S. Federal Reserve member and a rebound in U.S equities.

The Canadian dollar closed at C$1.0084 to the U.S. dollar, or 99.17 U.S. cents, down from C$1.0014 to the U.S. dollar, or 99.86 U.S. cents, at Monday's close.

The currency hovered near parity for much of the overseas session, but then dropped to C$1.0062 shortly after the May retail sales numbers were released, and fell steadily for most of the morning.

Statistics Canada said soaring gasoline prices drove sales up by 0.4 percent from April, but excluding price changes, sales rose just 0.1 percent. Excluding autos, sales rose by 0.4 percent.

Analysts surveyed by Reuters had expected a 0.6 percent rise in overall retail sales, and a 0.8 percent increase excluding auto sales.

"No disaster, but it was a pretty soft number and certainly not near the expectations, so there was a bit of a liquidation move on the back of that," said Shaun Osborne, chief currency strategist at TD Securities.

"This morning's disappointing retail sales data reinforce the view that the Canadian consumer is fading somewhat as higher headline inflation saps real spending power," Merrill Lynch Canada economist David Wolf said in a research note.   Continued...