Canadian dollar shaken after weak retail data
By Frank Pingue
TORONTO, Feb 22 (Reuters) - The Canadian dollar was knocked
lower versus the U.S. dollar on Friday morning after a domestic
retail sales report missed expectations and supported the case
for more Bank of Canada rate cuts.
Domestic bond prices were lower across the curve.
At 9:40 a.m. (1440 GMT) the Canadian unit was at C$1.0123
to the U.S. dollar, or 98.78 U.S. cents, down from C$1.0013 to
the U.S. dollar, or 99.87 U.S. cents, at Thursday close.
The fall in the Canadian currency immediately followed data
that showed December was a disappointing month for retailers in
Canada aside from the auto sector.
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.
“This provides the Bank of Canada comfort that they can cut
interest rates aggressively and have no worries because the
Canadian dollar is basically carrying the burden of keeping
inflation under control,” said David Watt, senior currency
strategist at RBC Capital Markets.
“The reaction was right for the Canadian dollar to weaken
off on the headline, but the underlying picture of retail sales
in Canada is not that its weakening, so there should be no
negative momentum carry through for the Canadian dollar.”
The Bank of Canada cut its key rate by 25 basis points in
December and January to 4.00 percent and is expected to cut
again when it sets interest rates on March 4.
All of Canada’s primary dealers expect another rate cut in
March, but the expectations range from a quarter-point cut to a
half-percentage point cut.
“Analysts are suggesting that consumer spending is really
where domestic strength is going to come from in economic
growth and prosperity in 2008,” said Gareth Sylvester, senior
currency strategist at HIFX Plc in San Francisco.
“So in the absence of a strong number it’s just sort of
casting some doubt over that and I think its reiterating that
the Bank of Canada are going to have to take some action in
terms of monetary policy to try and sort of spur some economic
activity in Canada.”
Despite the drop in the Canadian dollar, it still stuck
withing range it has occupied for several weeks now, hovering
just around the parity level versus its U.S. counterpart.
BONDS LOWER
Canadian bond prices were lower across the curve as the
retails sales data, while missing estimates, did not paint too
bleak a picture of the Canadian economy.
“We are not getting signs here that the Canadian economy is
struggling all that well outside of the trade sector,” said
Watt. “So if in the second half of the year the U.S. economy
starts to rebound, then the Canadian economy can look quite
strong because the domestic side is still doing fairly well.”
The overnight Canadian Libor rate LIBOR01 was 3.9133
percent, down from 3.9183 percent on Thursday.
Thursday’s CORRA rate %26lt;CORRA=%26gt; was 3.9964 percent.
The two-year bond was down 1 Canadian cent at C$101.95 to
yield 3.103 percent. The 10-year bond dropped 10 Canadian cents
to C$100.95 to yield 3.873 percent.
The yield spread between the two- and 10-year bond was 77.1
basis points, down from 76.4 basis points at the previous
close.
The 30-year bond fell 27 Canadian cents to C$112.78 to
yield 4.234 percent. In the United States, the 30-year Treasury
yielded 4.557 percent.
The three-month when-issued T-bill yielded 3.25 percent,
unchanged from the previous close.
(Editing by Renato Andrade)
