September 24, 2014 / 2:14 PM / 3 years ago

C$ drops to six-month low on weak data, dovish central bank

The new Canadian five and 10 dollar bills, made of polymer, are displayed with the previously released 20, 50 and 100 dollar notes following an unveiling ceremony at the Bank of Canada in Ottawa April 30, 2013.Chris Wattie

TORONTO (Reuters) - The Canadian dollar extended losses against the greenback on Wednesday, hitting its weakest level in six months as a dovish central bank and Tuesday's report of weaker-than-expected retail sales figures for July gave the currency a languid tone.

The Bank of Canada's policy stance has looked dovish in recent commentary. It has noted that stronger inflation over the past half year has been due to one-off factors and it has estimated that the rate at which the economy can work at full capacity with stable inflation is lower than it has been historically.

"We've been one of the weaker performing currencies over the past number of sessions. Obviously yesterday's retail sales data was very disappointing," said Don Mikolich, executive director, foreign exchange sales, at CIBC World Markets.

"In the absence of any strong economic results to come this week, and that continued tone from the Bank of Canada, Canada seems to be losing a little bit of ground. Weak commodity prices are also not helping at this stage either."

After six months of gains, Canadian retail sales unexpectedly fell 0.1 percent in July from June's record level. [ID:nL2N0RO0RK]

The Canadian dollar was weaker for a fourth straight session on Wednesday, breaking through C$1.11, or 90 U.S. cents, a key resistance level.

At 9:27 a.m., the Canadian dollar CAD=D4 was trading at C$1.1113 to the greenback, or 89.98 U.S. cents, its weakest level since March 26, and lower than Tuesday's close at C$1.1069, or 90.34 U.S. cents.

The next level to watch for would be a break through C$1.1150 and C$1.12, said Mikolich, who did not expect it to weaken beyond that in the near term.

Canadian government bond prices were mostly lower across the maturity curve, with the two-year CA2YT=RR down 2 Canadian cents to yield 1.131 percent and the benchmark 10-year CA10YT=RR falling 6 Canadian cents to yield 2.177 percent.

Reporting by Solarina Ho; Editing by Peter Galloway

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