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Canada Dollar Reaches Highest in Almost a Week on Sales

Canada’s dollar touched the strongest level in almost a week after a report showed the nation’s retail sales rose for a second month.

The currency pared the advance as a gauge of volatility dropped. The May sales figures followed a report last week that showed consumer prices climbed the fastest in more than two years in June.

“The underlying momentum in the Canadian economy is solid,” Adam Button, a currency analyst at in Montreal, said in a phone interview.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, strengthened as much as 0.3 percent to C$1.0711 per U.S. dollar, the strongest level since July 18, before trading at C$1.0728 at 5 p.m. in Toronto, up 0.1 percent. One Canadian dollar buys 93.21 U.S. cents.

Implied volatility for one-month options on the U.S. currency against its Canadian peer fell to 4.5 percent after reaching 4.4 percent on July 18, the least on a closing basis since July 4. The measure is used to set option prices and gauge the expected pace of currency swings. The 2014 average is 6.1 percent.

Yields on Canada’s benchmark 10-year government bonds touched a 13-month low. They sank as much as one basis point, or 0.01 percentage point, to 2.11 percent, the least since June 2013, before trading little changed at 2.13 percent. The price of the 2.5 percent securities due in June 2024 was C$103.29.

Beat Forecast

Retail sales increased 0.7 percent to C$42 billion ($39.1 billion) as automobile purchases rose to a record, Statistics Canada reported. Economists in a Bloomberg survey forecast retail sales would increase 0.6 percent. They gained 1.3 percent the previous month, more than initially reported, Statistics Canada data showed.

Purchases excluding the motor vehicle and parts category increased 0.1 percent, while economists had forecast a 0.3 percent rise.

“The main headline was strong,” said Button at “The details of the report are soft.”

The loonie had the biggest intraday jump in a month on July 18 as Statistics Canada said the consumer-price index rose 2.4 percent from a year earlier. The level, which exceeded a Bloomberg survey’s forecast for 2.3 percent, was the highest since February 2012 and marked the second consecutive month the inflation gauge was higher than the Bank of Canada’s 2 percent target. The currency gained as much as 0.5 percent to C$1.0709.

Interest Rate

The Bank of Canada said July 16 that inflation gains are temporary, and held the benchmark interest rate at 1 percent, where it’s been since 2010. Central-bank Governor Stephen Poloz is counting on a rotation to business investment and exports from spending by indebted consumers to lead Canadian economic growth.

The loonie has swung this year between a 4 1/2 year low of C$1.1279 and a six-month high of C$1.0621 as investor speculation fluctuated on when interest rates might be raised.

The currency gained 3.8 percent in the past three months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, the best performer. The U.S. dollar rose 0.7 percent.

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