December 21, 2011 / 9:43 PM / 6 years ago

C$ shines after surprising retail sales report

TORONTO (Reuters) - Canada’s dollar outperformed the G10 currency pack on Wednesday, climbing against the greenback on surprisingly strong domestic retail data and on easing euro zone fears after banks gorged on low-cost loans from the European Central Bank.

Canadian retail sales jumped more than expected in October, showing consumers were still happy to spend despite uncertain times, raising hopes the economy might eke out some growth at the start of the fourth quarter.

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

“CAD tended to be a top performer for much of the day. Part of that one could attribute to the buffering effects of a better than expected retail sales report, which is expected to channel positively into Friday’s GDP report,” said Stewart Hall, senior currency strategist at RBC Capital Markets.

Hall also credited part of the move to a constructive risk backdrop after the ECB allotted 490 billion euros in a three-year long-term refinancing operation to struggling banks in the region - though thin liquidity made it difficult to draw too many conclusions.

“We have to recognize that the discovery process involved in making prices is operating in a vacuum today, tomorrow and Friday, and likely all of next week, so really in a sense we’re going to have to wait for confirmation on any pricing direction for the new year once everyone’s back to business.”

Many analysts were concerned there was little prospect of the ECB loans being aimed at easing debt levels in euro zone weaklings like Greece and, while an interbank lending freeze may have been averted, the lack of trust between banks to lend to each other remained unresolved.

The Canadian dollar ended the North American session at C$1.0259 to the U.S. dollar, or 97.48 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. RBC put near-term resistance for the Canadian dollar against the greenback around C$1.0151.

The currency hit an intraday peak of C$1.0209 to the U.S. dollar, or 97.95 U.S. cents earlier in the session, its firmest level since December 12.

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

“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,” he added.

Canadian government bond prices edged lower across the curve, but outperformed U.S. Treasuries as traders sold positions ahead of year-end. <US/>

The two-year bond fell 2 Canadian cents to yield 0.895 percent, while the 10-year bond dropped 19 Canadian cents to yield 1.950 percent. The 30-year bond eased 55 Canadian cents to yield 2.487 percent.

Additional reporting by Jennifer Kwan; editing by Rob Wilson

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