Canada Dollar Holds Weekly Gains for Longest Streak in 10 Months

The Canadian dollar rose for a third week, the longest winning stretch since September, after the biggest gain in retail sales in three years sparked bets for faster economic growth this year.

Canada will report May gross domestic product figures next week forecast to show the economy grew 0.3 percent in May following a 0.1 percent expansion in April. Federal Reserve policy makers convening next week are expected to maintain monetary stimulus that has tended to depress the U.S. dollar.

“We’ve had somewhat better-than-expected data and weakness in the U.S. dollar, which have combined to continue to give the Canadian dollar a boost,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The focus is going to turn to the Fed and U.S. data next week as Canadian dollar performance is increasingly being held hostage by trends outside of Canada.”

The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, climbed 0.9 percent this week to C$1.0278 per U.S. dollar at in Toronto. One loonie buys 97.30 U.S. cents. The Canadian currency touched C$1.0255, the strongest level since June 19. It has risen 0.2 percent in the past month, and 0.1 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index.

Speculators Less Bearish

Futures traders decreased their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 16,758 on July 23, compared with net shorts of 20,043 a week earlier.

Retail sales jumped 1.9 percent in May to a record C$40.4 billion ($39.1 billion), Statistics Canada said July 23 in Ottawa. The gain almost doubled the highest projection in a Bloomberg survey of 20 economists, which had a median forecast of 0.4 percent.

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. Bank of Canada Governor Stephen Poloz said last week cited evidence of a “constructive evolution” in household finances and has said the expansion must rotate to one led by exports and business investment.

Moving Averages

“The retail sales data really put some strength back into the Canadian dollar,” Mazen Issa, Canada macro-strategist at Toronto-Dominion Bank’s TD Securities, said by phone from Toronto on July 24. “We’re still expecting deceleration in growth, but maybe not as soft.”

Canada’s dollar has traded stronger than its 50-day average since July 22. Breaching moving averages signal to some traders a move has momentum to continue.

The Canadian dollar has rallied since touching C$1.0609 on July 5, the weakest level in almost two years. Much of the gain has stemmed from higher oil prices linked to temporary factors such as political turmoil in the Middle East and seasonal increases in U.S. oil demand, according to a note from Citigroup Inc. analysts led by Josh O’Byrne.

The end of transient forces elevating oil prices could push the loonie lower against the U.S. dollar, according to the analysts.

Fed Chairman Ben. S. Bernanke is expected to maintain the current level of monetary stimulus at a meeting of the Open Market Committee on July 30-31, according to a Bloomberg survey. The Fed will probably start trimming $85 billion of monthly bond purchases in September, according to economists.

“There are a lot of questions that will dictate what comes next for us this upcoming week,” Shaun Osborne, chief currency strategist at TD Securities, a unit of Toronto-Dominion Bank, said by phone from Toronto. “We’ve had a stronger run, but there is a lot of uncertainty to come.”

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