Loonie posts biggest gain since start of 2020 as U.S. dollar stumbles

TORONTO (Reuters) - The Canadian dollar strengthened to a three-week high against its U.S. counterpart on Friday as the greenback gave back some recent gains against a basket of other major currencies and a measure of domestic underlying retail sales rose in December.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

Canadian retail sales were unchanged in December from November at C$51.65 billion, undershooting the 0.1% gain that analysts had expected, data from Statistics Canada showed. But sales were more robust after excluding motor vehicles and parts dealers, rising 0.5%.

“Retail sales extended the string of disappointing readings on the Canadian economy, but some of the stripped-down measures proved more encouraging than the headline,” said Royce Mendes, a senior economist at CIBC Capital Markets.

Last month, the Bank of Canada left the door open to an interest rate cut should a recent slowdown in domestic growth persist. Investors see about a 50% chance that the central bank would ease by April.BOCWATCH

At 3:09 p.m. EST (2009 GMT), the Canadian dollar CAD=D4 was trading 0.4% higher at 1.3210 to the greenback, or 75.70 U.S. cents, its biggest gain since Dec. 31. It touched its strongest intraday level since Jan. 31 at 1.3202.

For the week, the loonie was up 0.3%, its second straight weekly advance.

The U.S. dollar .DXY pulled back from a three-year peak after a survey of purchasing managers showed U.S. business activity in the manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the coronavirus outbreak.

Stocks globally .WORLD and the price of oil, one of Canada's major exports, fell as a rise in new cases of the coronavirus and weak Asian data fueled uncertainty about the economic outlook. U.S. crude oil futures CLc1 settled 0.9% lower at $53.38 a barrel.

The virus has stalled talks between Canada and China about Beijing’s decision to block Canadian canola seed shipments, Agriculture Minister Marie Claude Bibeau said.

Canadian Prime Minister Justin Trudeau said he was working to end rail blockades led by indigenous protesters as farmers and businesses warned of mounting economic damage after two weeks of barricades.

Canadian government bond yields were lower across a flatter yield curve in sympathy with U.S. Treasuries. The 10-year yield CA10YT=RR fell 8.1 basis points to 1.273%, nearly its lowest level since October.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Jonathan Oatis