TORONTO (Reuters) - The Canadian dollar gave back a slice of its recent gains versus the U.S. dollar on Thursday as domestic retail sales data were lower than expected, but the currency’s fall was cushioned by record high oil prices.
Domestic bond prices were pinned lower across the curve due in large part to influence from overseas markets and data that showed jobless claims in the United States unexpectedly fell.
At 9:40 a.m. (1340 GMT), the Canadian currency was at US$1.0144, valuing a U.S. dollar at 98.58 Canadian cents, down from US$1.0162, valuing a U.S. dollar at 98.41 Canadian cents, at Wednesday’s session close.
It marked a turnaround for the domestic currency after rising in each of the past four sessions, including a rise to its highest level in more than two months.
Data that showed Canadian retail sales rose 0.1 percent in March, below the 0.3 percent gain forecast by analysts in a Reuters poll, dragged the Canadian dollar down to US$1.0126, valuing a U.S. dollar at 98.76 Canadian cents.
“Retail sales disappointed and that put a bid to dollar Canada,” said Jack Spitz, managing director of foreign exchange at National Bank Financial. “Offset that with record high oil prices which are mitigating any significant gains in dollar Canada for the moment.”
Oil prices hit a record high for a third straight day, this time rising above $135 a barrel, and kept the commodity-linked Canadian currency from falling much further.
The market will now wait to hear comments from Bank of Canada Governor Mark Carney later in the session for any hints as to where domestic interest rates are headed and to see if the bank’s outlook for the economy has changed.
Carney is scheduled to give a speech on “Principles for Liquid Markets” in New York at 1:20 p.m. to the New York Association for Business Economics. His speech will be followed by a news conference.
The Canadian currency has been on a tear most of the week given the charge in oil prices and Canadian inflation data that convinced investors the Bank of Canada would soon end its current round of interest rate cuts.
The Bank of Canada, which has cut its key rate by 150 basis points since the start of December, is now expected to cut another 25 basis points in June and then move to the sidelines, according to a Reuters poll taken after the inflation data.
Canadian bond prices extended earlier losses after the U.S. data showed a surprise decline in weekly jobless claims, which offered some hope that the labor market may be stabilizing.
Domestic bond prices were already under pressure since bond markets overseas fell given the unattractive global environment of rising inflation and lower growth.
“Markets overseas had a very negative tone,” said Mark Chandler, fixed income strategist at RBC Capital Markets. “But overall bonds are down in Canada and yields are up because of the pressure we’ve seen in a number of countries, particularly in the U.S.”
Chandler also said the weaker domestic retail data was not that favorable for bond prices as details of the report showed the decline in the headline number was due to poor weather and that after stripping out price changes, sales volume rose about 0.5 percent.
The overnight Canadian LIBOR rate was at 3.0633 percent.
Wednesday’s CORRA rate was 2.9863 percent, down from 3.0053 percent on Tuesday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.
The two-year bond was down 16 Canadian cents at C$101.49 to yield 2.986 percent. The 10-year bond slid 62 Canadian cents to C$102.58 to yield 3.661 percent.
The yield spread between the two- and 10-year bond was 67.5 basis points, down from 67.3 at the previous close.
The 30-year bond dropped 97 Canadian cents to C$114.88 for a yield of 4.116 percent. In the United States, the 30-year treasury yielded 4.589 percent.
The three-month when-issued T-bill yielded 2.68 percent, up from 2.66 percent at the previous close.
Reporting by Frank Pingue; Editing by Scott Anderson