The Canadian dollar strengthened against the majority of its 16 most-traded peers after the biggest gain in retail sales in three years sparked bets for faster economic growth this year.
The currency was little changed versus its U.S. counterpart after a report yesterday showed sales in May increased 1.9 percent, almost double the highest forecast in a Bloomberg survey of 20 economists, which had a median projection of 0.4 percent. Canada will report May gross domestic product figures next week. The Bank of Canada sold C$3.3 billion ($3.2 billion) of debt due in November 2015 at a yield of 1.230 percent.
“The retail sales data really put some strength back into the Canadian dollar,” said Mazen Issa, Canada macro-strategist at Toronto-Dominion Bank’s TD Securities, by phone from Toronto. “We’re still expecting deceleration in growth, but maybe not as soft.”
The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, fell 0.1 percent to C$1.0300 per U.S. dollar at 12:45 p.m. in Toronto. It touched C$1.0263, its highest point since June 19. One loonie buys 97.07 U.S. cents.
The currency traded stronger than its 100-day moving average of C$1.0268 per U.S. dollar for the first time in a month. Trading past a moving average is a signal to some traders a move has momentum. The currency has risen from its lowest point in almost two years reached July 5.
The loonie has benefitted from the strongest international inflows of all developed market currencies into Canada’s stocks and bonds, Samarjit Shankar, a senior currency strategist at the Bank of New York Mellon Corp. wrote in a note to clients.
Flow data shows Canadian debt has benefitted from a recently installed central bank governor who has pushed back expectations of higher rates as portfolio managers and central banks search for shelter from volatility in the U.S. Treasury market, Shankar wrote.
Canada’s benchmark 10-year bond fell, with yields rising seven basis points, or 0.07 percentage point, to 2.48 percent. The 1.5 percent security maturing in June 2023 lost 60 cents to C$91.51.
Canada’s two-year bond auction had a bid-to-cover ratio of 2.595 times, the lowest ratio since February, according to Bank of Canada data.
The yield on December 2013 bankers’ acceptances, a measure of interest-rate expectations, rose for the fourth straight day to 1.31 percent. So-called Bax contracts have settled an average of about 0.20 percentage point above the central bank’s target rate since 1992, data compiled by Bloomberg show.
“Definitely for the Canadian dollar, we’ve priced in all the bad data we possible could,” said Eimear Daly, a currency market analyst at Monex Europe Ltd., by phone from London. “There’s upside for it and we’re going to see more upside moves.”
The loonie has risen 1 percent in the past month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar is down 1.2 percent.