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Canada Dollar Trades in Narrowest Range in 3 Months Before Data

Canada’s dollar traded in the narrowest range since May before reports this week forecast to show retail sales shrank and the consumer price index remained below the central bank’s inflation target for a 15th month.

The currency fell last week amid speculation the U.S. Federal Reserve will slow monetary stimulus as soon as September. Yields on Canadian-government 10-year bonds climbed to a two-year high for a fifth straight day amid speculation the nation’s economy is lagging behind that of its biggest trading partner. Stocks fell and commodities fluctuated.

“Investors are waiting for more fundamental data to make a move, and retail sales and CPI should give us direction this week,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said in a telephone interview. “The Canadian dollar is still somewhat overvalued. Longer-term, the U.S. dollar should continue to improve as we get closer to tapering. That means a weaker Canadian dollar.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.1 percent to C$1.0345 per U.S. dollar at 5 p.m. in Toronto after losing 0.5 percent last week. One loonie buys 96.67 U.S. cents.

The currency traded between C$1.0348 and C$1.0316, a 0.32 cent gap that was the smallest since May 6.

Moving Averages

Canada’s dollar has closed between its 50- and 100-day moving averages since Aug. 9, staying stronger than the shorter average and weaker than the longer. Moving averages are indicators of momentum, and some traders see crossing them as turning points in the direction of a currency’s price.

A break of C$1.0442 would “generate renewed bullish momentum” in the U.S. dollar against the loonie, George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at Royal Bank of Canada, wrote in a note to clients. The level was last touched on Aug. 7.

Benchmark Canadian 10-year bonds fell for a sixth day, the longest stretch since June, pushing yields up four basis points, or 0.04 percentage point, to 2.74 percent. Yields touched 2.76 percent, the highest since July 2011. The price of the 1.5 percent debt due in June 2023 lost 31 cents to C$89.42.

The loonie has lost 0.7 percent this year against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 4 percent, while the euro has rallied 5.3 percent.

‘Soft Side’

Canada’s currency slid versus most major peers Aug. 16 after data from the nation’s statistics agency showed manufacturing sales unexpectedly fell 0.5 percent in June, versus a Bloomberg survey forecast of a 0.3 percent gain. The data followed a report Aug. 9 that showed the nation unexpectedly lost 39,400 jobs in July.

“If you look at the data of late, it’s been missing a little bit to the soft side, which would seem to indicate Canada should over the medium term be a little bit weaker,” Matthew Perrier, director of foreign-exchange trading at Bank of Montreal, said by phone from Toronto. “But we’ve been stuck in a range for a couple of weeks now, so we’re still waiting for that breakout.”

The Canadian dollar may weaken to C$1.11 to the greenback by the first quarter of 2014 as U.S. economic expansion outpaces growth in Canada, Toronto-Dominion’s Osborne said.

The median estimate in a Bloomberg survey of 62 economists and analysts is for the loonie to trade at C$1.04 in first-quarter 2014 after ending 2013 at C$1.05.

Economic Reports

Canada’s retail sales declined 0.4 percent in June after gaining 1.9 percent the previous month, the fastest pace in three years, economists in a Bloomberg survey forecast before a report due Aug. 22.

The nation’s consumer price index increased 1.4 percent in July from a year earlier, after rising 1.2 percent in June, another survey projected before data due Aug. 23. The Bank of Canada’s inflation target is 2 percent.

The U.S. CPI rose to 2 percent in July from a year earlier, data showed last week, and claims for jobless benefits fell to the lowest since 2007 for the week ended Aug. 10.

The Fed will reduce as soon as its meeting on Sept. 17-18 the $85 billion in monthly bond purchases it’s making to put downward pressure on borrowing costs and stimulate the economy, according to 65 percent of economists surveyed by Bloomberg this month. Central-bank bond purchases tend to debase a currency.

Investors will look to the minutes of the July 30-31 meeting of the policy-setting Federal Open Market Committee, scheduled to be released Aug. 21, for clues on tapering.

Standard & Poor’s GSCI Index of 24 raw materials fluctuated after rising for the past six days. The S&P 500 Index fell 0.6 percent in its fourth daily decline.

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