Canadian dollar falls on weak retail sales report

Wed Apr 23, 2008 11:06am EDT
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TORONTO (Reuters) - The Canadian dollar fell one percent against the U.S. dollar on Wednesday, largely due to a report that showed an unexpected drop in retail sales in February.

Domestic bond prices rallied on the short end on the data.

At 9:20 a.m. EDT, the Canadian dollar was at C$1.0180 to the U.S. dollar, or 98.23 U.S. cents, down from C$1.0080 to the U.S. dollar, or 99.21 U.S. cents, at Tuesday's close.

Percentage wise, it was the currency's biggest drop since March 19.

Much of the decline came after data showed that Canadian retail sales unexpectedly fell 0.7 percent in February. See <ID:nN23473096>. Analysts surveyed by Reuters had forecast, on average, sales to inch higher by 0.1 percent.

It was the first decline in five months and a sign that strong consumer spending may be losing its resilience to the overall economic slowdown.

Ontario, Canada's most populous province, and the one most exposed to the U.S. economic downturn, saw the biggest drop in its retail sales numbers.

"That is the Bank of Canada's key fear, that the weakness in manufacturing and trade, which is centered in Ontario, would begin to seep out to the rest of the economy and start to affect the macroeconomic numbers, and that seems to be, to an extent, unfolding," said David Watt, senior currency strategist at RBC Capital Markets.

The Bank of Canada releases its Monetary Policy Report on Thursday and the market will be watching closely for more details on the bank's assessment of the economy.   Continued...