TORONTO (Reuters) - The Canadian dollar capped a winning week with a lower close on Friday as details of stronger-than-expected domestic retail sales data ate away at gains made by the currency moments after the retail sales report landed.
Canadian bond prices ended higher across the curve as the market continued price out the idea that central banks in North America will be raising interest rates any time soon.
The Canadian dollar closed at C$1.0170 to the U.S. dollar, or 98.33 U.S. cents, down from C$1.0152 to the U.S. dollar, or 98.50 U.S. cents, at Thursday’s close.
For the week, the currency rose 1.2 percent.
The Canadian currency shot to C$1.0101 to the U.S. dollar, or 99.00 U.S. cents, immediately after data showed retail sales in Canada rose 0.6 percent in April. But it backed off the two-week high moments after as details of the report were digested.
The data showed that the gain was heavily concentrated in Quebec, which was mostly a rebound from the previous month when big snowfalls limited gains.
“When people saw that, I think the general consensus was that the gains Quebec registered in the bounce-back in April were unlikely to be sustained in upcoming months,” said George Davis, chief technical strategist at RBC Capital Markets. “And as a result of that, that would have had a bit of a moderating impact on the headline data.”
The decline in the commodity-linked Canadian dollar was cushioned somewhat by higher oil prices, which often influence the currency since Canada is a major oil exporter.
Bank of Canada Governor Mark Carney’s speech late Thursday in Calgary, Alberta, did not have any noticeable impact on the currency as he said an unprecedented rise in commodity prices required a “relentless focus on inflation.”
Carney said the global spike in energy and food prices was unlike any previous commodity boom because the increases have been so steep and encompassed such a broad range of goods.
Prices for Canadian bonds rose alongside the bigger U.S. Treasury market as reports earlier this week that poured cold water on the notion of higher U.S. interest rates continued to offer a bid for secure assets such as government debt.
Reports earlier this week in the Wall Street Journal and Financial Times cited senior Fed officials who said the U.S. central bank was unlikely to raise rates in the next few months unless the inflation outlook worsened.
That opened the door for bond prices to reclaim a portion of the steep losses suffered last week when the Bank of Canada surprised the market when it left its key rate steady instead of following expectations for a cut.
“I feel like the dominant theme of the week is that central bankers believe the market has gone too far in pricing in rate hikes,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
“The market hemmed and hawed on that and I think ultimately it has decided to properly absorb that message and to reduce the odds of rate hikes.
The two-year bond rose 11 Canadian cents to C$100.84 to yield 3.298 percent. The 10-year bond gained 41 Canadian cents to C$101.37 to yield 3.817 percent.
The yield spread between the two-year and 10-year bond was 51.9 basis points, down from 52.0 at the previous close.
The 30-year bond added 82 Canadian cents to C$114.22 for a yield of 4.151 percent. In the United States, the 30-year Treasury yielded 4.725 percent.
The three-month when-issued T-bill yielded 2.70 percent, down from 2.72 percent at the previous close.
Reporting by Frank Pingue; Editing by Peter Galloway