February 22, 2008 / 9:36 PM / in 10 years

Canadian dollar ends lower after retail sales data

TORONTO (Reuters) - The Canadian dollar ended lower against the U.S. dollar on Friday en route to a third straight weekly decline after data showed Canadian retail sales outside the auto sector disappointed in December.

Canadian bond prices ended lower across the curve, handing back some of the gains made earlier in the week as investors focused more on the overall rise in December retail sales.

The Canadian dollar closed at C$1.0130 to the U.S. dollar, or 98.72 U.S. cents, down from C$1.0013 to the U.S. dollar, or 99.87 U.S. cents, at Thursday close.

Retail sales rose a softer-than-expected 0.6 percent in December, but outside the auto sector sales fell for the first time in five months, down 0.4 percent, compared with estimates calling for a 0.4 percent rise.

The Canadian dollar fell right after the report and was not able to rebound, eventually hitting a session low of C$1.0168 to the U.S. dollar, or 98.35 U.S. cents, during the last half of the North American session.

“It seems to me the currency is sort of latching on to bad news these days and it seems to be paying a lot more attention to the bad news than the good news,” said Doug Porter, deputy chief economist at BMO Capital Markets.

“Even though in real terms it was a solid gain for the month for overall sales, the market seemed to focus on that decline in ex-auto sales and it was just another in a long string of bad news for the economy in December.”

For the week, the Canadian dollar ended down 0.5 percent but remained stuck in the range it has occupied for several weeks now, hovering around parity versus its U.S. counterpart.

Helping to somewhat cushion the commodity-linked Canadian dollar’s fall was a rise in oil prices to near $99 a barrel. The currency followed oil prices more closely last year but it has been less influenced by the commodity price in 2008 and more linked to direction in equity markets.

BONDS LOWER

Canadian bond prices closed lower across the curve as the retail sales data, while missing estimates, did not paint too bleak a picture of the Canadian economy.

Also, the bigger U.S. Treasury market, which often has an influence on Canadian bond prices, ended in negative territory.

“Given the currency market’s reaction to the retail sales data, I mean to be consistent you would’ve expected a little bit of a better performance among bonds,” Porter said. “I put some of it down to the U.S. rally seems to have stalled and we’ve had a big move in recent days already for bonds.”

The two-year bond dropped 8 Canadian cents to C$101.88 to yield 3.144 percent. The 10-year bond dropped 20 Canadian cents to C$100.85 to yield 3.889 percent.

The yield spread between the two- and 10-year bond was 74.5 basis points, down from 76.4 basis points at the previous close.

The 30-year bond fell 30 Canadian cents to C$112.75 to yield 4.235 percent. In the United States, the 30-year Treasury yielded 4.582 percent.

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

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