February 13, 2008 / 2:13 PM / in 10 years

Loonie higher on U.S. data

TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday, after U.S. retail data came in stronger than expected, showing that fears of a recession have not yet caused consumers in Canada’s biggest trading partner to close their wallets completely.

Domestic bond prices, with the lack of any key domestic data to influence direction, moved lower along with the bigger U.S. Treasuries market after the U.S. data.

At 8:58 a.m. EST, the Canadian dollar was at US$1.0026, valuing a U.S. dollar at 99.74 Canadian cents, up from 99.90 U.S. cents, valuing a greenback at C$1.0010, at Tuesday’s close.

U.S. retail sales unexpectedly rose 0.3 percent in January, due in part to stronger sales of new cars and gasoline.

January’s sales increase followed a 0.4 percent decline in December and was contrary to Wall Street analysts’ forecasts for a 0.2 percent decline.

“There were widespread expectations for a very poor outcome here,” said Eric Lascelles, chief economics and rates strategist at TD Economics.

“We thought that same store sales would have been very soft in January with the cold weather and reluctance to spend gift cards holding things back, but it turns out that nope, they didn’t too much.”

The next key U.S. report investors will look to for a clearer picture of where the U.S. economy is at will be the U.S. international trade data due on Thursday.

Recent Canadian data has painted a picture of a resilient economy, but the United States takes in about three-quarters of Canadian exports, so any slowdown there could hit the Canadian economy hard.

The Canadian dollar has been stuck in a tight range for the past few weeks, hovering on either side of parity with the greenback, and it seems like it is going to hold around that level until the next Bank of Canada rate decision in March, said Lascelles.

BONDS FALL

Canadian bond prices fell along with U.S. Treasuries after the surprisingly strong U.S. data took away some of the flight to safety allure of government debt.

Canada’s economic calendar picks up on Thursday with merchandise trade data and Friday with a manufacturing shipments report.

The overnight Canadian Libor rate was at 3.9917 percent, down from 4.0467 percent on Tuesday.

The two-year bond fell 3 Canadian cents to C$101.97 to yield 3.110 percent. The 10-year bond slid 14 cents to C$101.04 to yield 3.864 percent.

The yield spread between the two- and 10-year bond was 75.4 basis points, unchanged from the previous close.

The 30-year bond dropped 42 cents to C$112.83 to yield 4.231 percent. In the United States, the 30-year Treasury yielded 4.510 percent.

The three-month when-issued T-bill yielded 3.26 percent, up from 3.25 percent at the previous close.

Editing by Renato Andrade

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