December 21, 2011 / 1:37 PM / in 6 years

Loonie higher on retail sales data, ECB loans support

TORONTO (Reuters) - Canada’s dollar climbed against the U.S. currency on Wednesday on surprisingly strong Canadian retail sales data and as banks borrowed large amounts from the European Central Bank, briefly helping to allay fears about a credit crunch.

Data showed Canadian retail sales in October jumped by an unexpectedly high 1.0 percent from September, pushed up by stronger sales of motor vehicles and gasoline.

The advance -- the third consecutive monthly gain -- is more evidence the Canadian economy was still relatively strong heading into the final quarter. Market operators had predicted a 0.5 percent increase.

“This shift of events is positive. On top of it we get (gross domestic product data) later in the week. This is one of the things that feeds into GDP and so a positive surprise here pushes the expectation for GDP slightly higher,” said Camilla Sutton, chief currency strategist at Scotia Capital.

The GDP data is due on Friday.

At 9:36 a.m. (1436 GMT), the Canadian dollar was at C$1.0286 to the U.S. dollar, or 97.22 U.S. cents, up from Tuesday’s North American session finish at C$1.0303 to the U.S. dollar, or 97.06 U.S. cents.

Banks took a huge 489 billion euros at the European Central Bank’s first ever offering of three-year funding on Wednesday and, raising hope the money may be used to buy Italian and Spanish bonds.

The amount of the take-up demolished market expectations and helped to send European stocks and the euro higher, though the gains eventually petered off as the demand also highlighted the scale of the pressures European banks are under.

But the move did help to push the Canadian dollar to a peak of C$1.0209 to the U.S. dollar, or 97.95 U.S. cents earlier on Wednesday, its strongest level since December 12.

“In the short term, it’s more or less stabilized risk and Canada will benefit,” said Darcy Browne, managing director, fixed income and currencies at CIBC World Markets.

“Longer term, I still expect the euro will probably trade lower. There’s still problems there, it still means Europe is going to have austerity measures, lower rates relative to North America where the data is looking a little better vis-a-vis than the European cousin,” he added.

Browne said near term resistance for the Canadian dollar was seen at C$1.0225 versus the greenback, while support was seen at C$1.0350.

Canadian government bond prices edged higher across the curve, with the two-year bond up 7 Canadian cents to yield 0.852 percent, while the 10-year bond climbed 32 Canadian cents to yield 1.894 percent. The 30-year bond gained 65 Canadian cents to yield 2.439.

Reporting By Jennifer Kwan; Editing by Chizu Nomiyama

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