Canadian dollar retreats after early rally

Tue Mar 25, 2008 9:44am EDT
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 By Frank Pingue
 TORONTO, March 25 (Reuters) - The Canadian dollar fell
versus the U.S. dollar on Tuesday, after an early boost from a
strong domestic retail sales report was wiped out by nagging
concerns about exports to the United States.
 Domestic bond prices rebounded from Monday's selloff as
dealers shrugged off the stronger-than-expected retail sales
report and moved into secure assets like government debt.
 At 9:30 a.m. (1330 GMT), the Canadian unit was at C$1.0186
to the U.S. dollar, or 98.17 U.S. cents, down from C$1.0179 to
the U.S. dollar, or 98.24 U.S. cents, at Monday's close.
 Statistics Canada data earlier on Tuesday showed retail
sales rose 1.5 percent in January, beating estimates for a 1.2
percent gain. That helped the Canadian dollar rise to C$1.0140
to the U.S. dollar, or 98.62 U.S. cents, its highest level
since March 20.
 The gains were shortlived as investors locked in profits
and turned their attention back to the health of the U.S.
economy and what impact that may have on demand for Canada's
exports, the bulk of which end up south of the border.
 That sent the Canadian dollar as low as C$1.0217, or 97.88
U.S. cents, before it bounced backed slightly.
 "I don't think it changes the broader picture that domestic
demand in Canada is still doing fine," said Doug Porter, deputy
chief economist at BMO Capital Markets. "But the big threat is
to the export side and this really just drives on the point
that domestic demand remains quite strong."
 The Canadian dollar was higher during the overnight session
given the rise in gold prices, which helped the currency recoup
some of the 3.6 percent drop it suffered last week when
commodity prices backed off record highs.
 Commodities make up about half of Canadian exports and that
often leaves Canada's currency vulnerable to changes in the
prices for gold and oil.
 Canada's economic calendar is bare until the gross domestic
product report for January, due on Monday. But the key piece of
data due next week is the March jobs report on April 4.
 Canadian bond prices added to earlier gains and remained
higher across the curve as dealers moved back into the secure
assets following a sell-off in the previous session.
 Part of the move was attributed to a rally in the bigger
U.S. Treasury market, which often influences the direction of
bond prices in Canada.
 "We are seeing a rebound in the (U.S.) Treasury market
today and that's probably compensating in Canada for the strong
retail sales," said Porter.
 The overnight Canadian Libor rate LIBOR01 was 3.6716
 Monday's CORRA rate CORRA= was 3.4882 percent, up from
3.4437 on Friday. The Bank of Canada publishes the previous
day's rate at around 9 a.m. daily.
 The two-year bond was up 4 Canadian cents at C$102.51 to
yield 2.706 percent. The 10-year bond increased 19 Canadian
cents to C$103.89 to yield 3.500 percent.
 The yield spread between the two- and 10-year bonds was
79.4 basis points, up from 79.1 points at the previous close.
 The 30-year bond was up 30 Canadian cents at C$117.94 to
yield 3.957 percent. In the United States, the 30-year treasury
yielded 4.312 percent.
 The three-month when-issued T-bill yielded 1.85 percent, up
from 1.68 percent at the previous close.
 (Editing by Bernadette Baum)