Monday February 23, 2009 - 22:17:05 GMT
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Reuters - www.reuters.com
Forex Market News - CANADA FX DEBT-C$ slips lower on retail sales data
* Canadian dollar slightly weaker after early rise
* Canada retail sales drop more than expected
* Bonds higher across the curve
(Adds details, quote)
By Jennifer Kwan
TORONTO, Feb 23 (Reuters) - The Canadian dollar was
slightly lower against the U.S. dollar on Monday, as data
showing a big drop in December retail sales reinforced
expectations the Bank of Canada will cut interest rates next
Retail sales tumbled 5.4 percent in December, Statistics
Canada reported on Monday, marking the biggest monthly drop
since 1991 and more than twice what was expected.
"What takes precedence is the dismal retail sales numbers
that we got this morning," said Charmaine Buskas, senior
economics strategist at TD Securities.
"They definitely confirm that the Canadian economy is under
a lot of pressure and it certainly assures the markets that
another rate cut is coming from the Bank of Canada," Buskas
The data puts more pressure on the central bank to cut its
key overnight rate by another half-point on March 3 to 0.50
The Canadian dollar finished at C$1.2513 to the U.S.
dollar, or 79.92 U.S. cents, down slightly from Friday's Bank
of Canada closing level of C$1.2493 to the U.S. dollar, or
80.04 U.S. cents.
At its lowest point, the currency hit 1.2558, or 79.63
U.S. cents, while at its highest point was at C$1.2350 to the
U.S. dollar, or 80.97 U.S. cents, according to Thomson Reuters
"It challenges the view that our only problems are on the
export side of the picture," Derek Holt, an economist at Scotia
Capital said of retail data.
"We're seeing building evidence of weakness creep into the
domestic economy and that's going to keep the Bank of Canada
cutting," he said.
The Canadian unit also came under pressure from falling
commodity prices, said Holt.
The U.S. dollar was also stronger against other currencies
on Monday, rising to near a three month high against the yen,
on expectations the U.S. government will take a big stake in
struggling U.S. bank Citigroup (C.N: Quote, Profile, Research, Stock Buzz). [ID:nN23344768]
"Against the U.S. dollar, there is an underlying theme of
risk aversion in the market," said Matthew Strauss, senior
currency strategist, RBC Capital Markets.
Investors are shunning riskier assets on concerns that
government stimulus actions won't be enough offset the global
Canadian bond prices were higher across the curve, as the
retail sales figures pushed money out of equity markets and
into safer government debt, analysts said.
"There's an awful lot of concern that perhaps we'll
transition into yet another ugly phase in this crisis and that
is upping the ante on the policymakers to come up with a new
round of ideas," said Holt.
The interest-rate sensitive two-year bond was up 9 Canadian
cents at C$102.75 to yield 1.171 percent, while the 10-year
bond rose 26 Canadian cents to C$111.41 to yield 2.840
The 30-year bond climbed 45 Canadian cents to C$125.25 to
yield 3.573 percent.
Canadian bonds outperformed U.S. treasuries across most of
the curve. The Canadian 30-year bond yield was 5.50 basis
points above its U.S. counterpart, compared with 1.60 basis
points on Friday.
(Reporting by Jennifer Kwan; editing by Rob Wilson)
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