August 20, 2008 / 9:04 PM / in 9 years

Canadian dollar ends flat on data, oil price

* Canadian dollar retreats on retail data, oil slide

* Bonds give back some of their recent gains

By John McCrank

TORONTO, Aug 20 (Reuters) - The Canadian dollar ended flat against the U.S. dollar on Wednesday, taking a hit from June retail sales data and a retreat by oil prices later in the session, which gave traders an opportunity to take profits on the greenback.

Bond prices ended lower as investors rejigged their books after a week of steep gains.

The Canadian dollar closed at C$1.0612 to the U.S. dollar, or 94.23 U.S. cents, just a tad down from C$1.0610 to the U.S. dollar, or 94.25 U.S. cents, at Tuesday’s close.

The currency spent the session in a fairly wide range of C$1.0570 and C$1.0653.

“The bulk of the price action was after the retail sales number got out of the way and on the oil prices side as oil prices sold off,” said Dustin Reid, senior foreign exchange strategist at ABN-AMRO in Chicago.

“Since then I think there has been some consolidation and profit-taking (in the U.S.-Canadian currency pair).”

The main Canadian news for forex markets was the report on June retail sales, which came in above expectations on the headline number. However, stripping out the price effects, sales actually fell 0.4 percent in volume terms for the month. See [ID:nN20254221]

That knocked the Canadian dollar to its low point of the day, but it bounced back as oil prices rallied well above $116 a barrel, which gave the commodity-linked currency a boost.

That support was short-lived though, as a midmorning report showed U.S. oil inventories surged in the prior week, knocking the price of crude oil CLc1 back below $115 a barrel and pushing the Canadian dollar back near its daily low.

At that point, traders saw an opportunity to take profits on the U.S. dollar, said Reid.

The next big Canadian data release with the potential to move the currency is the consumer price index for July on Thursday.

The headline year-over-year figure is expected to show inflation rose 3.4 percent in the month, with the core figure, which strips out volatile energy and food prices, at 1.6 percent, according to the average forecast by analysts in a Reuters poll.

“I think the market will look quite closely and there will be a substantial response, whichever way it goes,” said Eric Lascelles, chief economics and rates specialist at TD Securities.

The market has been pricing in Bank of Canada interest rate cuts by the end of the year as a response to rafts of recent data showing a softening economy. A lower than expected inflation reading would give the central bank more leeway to cut rates to spur growth, without having to worry about stoking inflation.

BOND PRICES FALL

Domestic bond prices fell after the retail sales numbers were released.

“Despite the fact that the data today was not especially supportive of the selloff ... people are kind of rejigging their books and perspectives,” said Lascelles.

“The Canadian bond market had such a strong bid in it over the last month that it got to levels people found to be absolutely absurd and I wonder if we’re just seeing an unwind of that,” he said.

The two-year bond fell 10 Canadian cents to C$101.64 to yield 2.794 percent. The 10-year bond slid 17 Canadian cents to C$105.48 to yield 3.579 percent.

The yield spread between the two-year and 10-year bond was 77.8 basis points, down from 83.1 at the previous close.

The 30-year bond lost 39 Canadian cents to C$116.26 for a yield of 4.039 percent. In the United States, the 30-year treasury yielded 4.451 percent.

The three-month when-issued T-bill yielded 2.52 percent, up from 2.45 percent at the previous close.

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