Canada Dollar Reaches 1-Month High as Retail Sales Top Forecast

Canada’s dollar rallied to a one-month high after a report showed retail sales in May increased at the fastest pace in three years, fueling speculation the economy may be improving.

The currency gained versus a majority of its 16 most-traded peers as sales jumped 1.9 percent, almost double the highest projection in a Bloomberg survey of 20 economists, which had a median forecast of 0.4 percent. Reports last week showed wholesale sales rose 2.3 percent, the biggest increase in more than two years, while manufacturing sales climbed 0.7 percent.

“It fits along the lines of the wholesale and manufacturing sales numbers that we saw in the last week and a half or so,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank. “In the next few weeks, through tame summer trading, we could see more of a grind higher for the Canadian dollar on some of these positive Canadian data trends.”

The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, increased 0.5 percent to C$1.0287 per U.S. dollar in Toronto as of 5 p.m. in Toronto, reaching the strongest level since June 20. One loonie buys 97.21 U.S. cents.

Technical Levels

The currency traded stronger than its 50-day moving average of C$1.0356 for a second day. Breaching moving averages signal to some traders a move has momentum to continue.

“We’re still looking for more U.S. dollar strength rather than Canadian dollar strength,” said David Watt, chief economist at HSBC Holding Plc in Toronto. “That 100-day moving average at C$1.028 is going to be an interesting test.”

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart was at 6.78 percent, the lowest level since May 13. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Canada’s benchmark 10-year bonds fell, pushing yields up five basis points, or 0.05 percentage point, to 2.41. The 1.5 percent security maturing in June 2023 lost 43 cents to C$92.11.

The Bank of Canada has kept its key lending rate at 1 percent since September 2010. Governor Stephen Poloz inserted a line in his monetary-policy report released July 17 saying near-record low interest rates are appropriate “as long as” there is significant economic slack in the economy, low inflation and households continue to repair their balance sheets.

The nation will auction C$3.3 billion ($3.2 billion) of notes due November 2015 tomorrow.

Consumer Spending

Retail Sales increased in May to a record C$40.4 billion ($39.1 billion), Statistics Canada said in Ottawa. The gain in retail sales follows other signs of resilience in consumer spending such as stronger home construction, which counter warnings by policy makers about the threat posed by record household debt loads.

A report last week showed existing-home sales in Canada rose 3.3 percent in June, the fourth straight increase.

“Coming into the spring, worries about housing in Canada were on the front pages,” said Adam Button, a currency analyst at in Montreal. “Now, it seems like consumers are feeling much better.”

The loonie has risen 0.7 percent in the past month against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The yen fell 3.5 percent and the U.S. dollar is down 1.6 percent.

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