Canadian dollar weakens on soft data, bonds down

Thu May 22, 2008 5:02pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar fell against the U.S. dollar on Thursday after a report showed retail sales were weaker than expected in March, but the commodity-linked currency was supported by robust oil prices, which prevented it from losing a lot of ground.

Bond prices fell as inflation concerns had investors betting the interest-rate easing cycles in Canada and the United States would soon come to an end.

The Canadian dollar closed at US$1.0143, valuing a U.S. dollar at 98.59 Canadian cents, down from US$1.0162, valuing a U.S. dollar at 98.41 Canadian cents, at Wednesday's session close.

The currency stayed within a tight range of US$1.0172 and US$1.0125, but was unable to make up losses made early in the session when Statistics Canada said retail sales rose just 0.1 percent in March. That was below the 0.3 percent gain forecast by analysts in a Reuters poll.

"I think most people realize at this point that the Canadian economy is moderating," said Camilla Sutton, currency strategist at Scotia Capital. "We expect further moderation as we go forward, but we still expect it to be strong relative to our neighbors to the south."

Bank of Canada Governor Mark Carney said after a speech in New York that he expects the U.S. downturn to last longer than the bank had previously forecast.

The Bank of Canada has cut its key interest rate by 150 basis points since December in an attempt to spur domestic growth in the face of the U.S. economic slowdown.

Carney added that inflation concerns would have to be taken into account ahead of the bank's June 10 interest rate announcement.   Continued...