Dollar retreats after early rally

Tue Mar 25, 2008 9:59am EDT
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By Frank Pingue

TORONTO (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 $1.0186 to the U.S. dollar, or 98.17 U.S. cents, down from $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 $1.0140 to the U.S. dollar, or 98.62 U.S. cents, its highest level since March 20.

The gains were short-lived 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 $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.   Continued...