April 23, 2008 / 9:13 PM / in 9 years

Canadian dollar rattled by weak retail sales data

TORONTO (Reuters) - The Canadian dollar closed at its lowest level versus the U.S. dollar in just over a week on Wednesday after data released early in the day showed an unexpected drop in February retail sales.

Canadian bond prices edged higher on the short end of the curve due to the economic data, but longer-dated bond prices fell alongside the bigger U.S. Treasury market.

The Canadian dollar closed at C$1.0173 to the U.S. dollar, or 98.30 U.S. cents, down from C$1.0080 to the U.S. dollar, or 99.21 U.S. cents, at Tuesday’s close.

The Canadian dollar fell to a session low of C$1.0215 to the U.S. dollar, or 97.89 U.S. cents, on the fall in retail sales, which was the first in five months.

According to Statistics Canada, Canadian retail sales fell 0.7 percent in February, well below expectations of analysts who had forecast, on average, that sales would inch up by 0.1 percent.

“Lately the market has tended to have a minimal reaction to the positive data and more of a reaction based on negative data,” said George Davis, chief technical strategist at RBC Capital Markets.

“So when we have weaker-than-expected domestic numbers we tend to see the Canadian dollar sell off to a larger degree than it tends to rally when we get stronger-than-expected numbers.”

The retail figures followed after the Bank of Canada cut its lending key rate by 50 basis points to 3 percent on Tuesday in a bid to help bolster Canada’s economy in the face of the U.S. downturn.

Next up for markets is the central bank’s Monetary Policy Report due out on Thursday, which will be closely watched for further details on the bank’s assessment of the economy.

BONDS MIXED

Short-end bond prices were boosted by the weak retail sales report, while the long end of the curve slid ahead of the MPR update and U.S. data due on Thursday.

“We mostly just saw a response to the retail sales data,” said Max Clarke, economist at IDEAglobal in New York. “And with respect to what the retail sales data meant, it doesn’t really mean as much for the long end as it does for the short end.”

March durable goods data is due out in the United States on Thursday along with a new home sales figures for March and a report on initial claims.

The two-year bond rose 4 Canadian cents to C$101.96 to yield 2.783 percent. The 10-year bond dipped 23 Canadian cents to C$102.52 to yield 3.671 percent.

The yield spread between the two- and 10-year bonds was 88.8 basis points, up from 83.6 basis points at the previous close.

The 30-year bond shed 70 Canadian cents to C$114.10 to yield 4.159 percent. In the United States, the 30-year treasury yielded 4.500 percent.

The three-month when-issued T-bill yielded 2.53 percent, up from 2.52 percent at the previous close.

Editing by Peter Galloway

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