TORONTO, Jan 27 - The Canadian dollar was higher on Tuesday despite a weak reading on domestic retail sales for November, which traders said was already being anticipated. Domestic bond prices were pushing forward in part due to the lagging retail sales and last week's hints from the Bank of Canada that more interest rate cuts could come. The Canadian dollar rose to C$1.3096 to the U.S. dollar, or 76.35 U.S. cents, from C$1.3141 to the U.S. dollar, or 76.09 U.S. cents, at Monday's close. The jump in the Canadian currency followed a report from Statistics Canada that showed retail sales dipped 0.3 percent in November after a 0.1 percent rise in October because of lower demand for vehicles.
But the economic data did little to thwart strength in the domestic currency as traders say the market does not need more convincing that the Bank of Canada will cut rates. "You will have to see very depressing numbers coming from Canada in order to continue any downward pressure on the Canadian dollar," said Benjamin Tal, senior economist at CIBC World Markets. "Weak retail sales numbers will not do the trick because it's already priced in by the market." The domestic currency was coming off a steep fall last week after the Bank of Canada cut its overnight rate by 25 basis points and gave firm hints that more cuts are looming. Canada's overnight rate is 2.50 percent, still well above the U.S. fed funds rate of 1 percent. This spread has been a factor in the domestic currency's sharp rise over the past year.
BONDS HEAD HIGHER
Domestic bond prices were mostly higher after the weak retail numbers supported a rise ahead of November gross domestic product data at the end of the week. "What we are seeing today on the bond market is probably a reflection of what we're going to see over the next few weeks," said Tal. The two-year bond rose 6 Canadian cents to C$100.84 to yield 2.527 percent, while the 10-year bond fell 5 Canadian cents to C$105.25 to yield 4.553 percent. The yield spread between the two-year and 10-year bond moved to 202.6 basis points from 199.1 at the previous close. The 30-year bond, due 2029, fell 10 Canadian cents to C$107.80 to yield 5.192 percent. In the United States, the 30-year treasury yielded 4.993 percent. The three-month when-issued T-bill yielded 2.27 percent, compared with 2.28 percent from the previous close.//