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Market News Canadian dollar rallies on retail sales data, hopes for trade deal

The Canadian dollar strengthened to its highest in more than two weeks against the greenback on Friday, as hopes rose for a trade deal between the United States and China and as domestic data showed a lower-than-expected drop in retail sales.

The Canadian dollar traded 0.7 per cent higher at 1.3144 to the greenback, or 76.08 U.S. cents, its biggest gain this month.

The currency touched its strongest level since Feb. 6 at 1.3134. For the week, it was up 0.8 per cent.

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“It is less about the loonie and more about the U.S. dollar, generally driven by a combination of dovish Fedspeak and optimism on trade,” said Eric Theoret, a currency strategist at Scotiabank. “It’s helping all of the commodity currencies.”

The Federal Reserve will keep an open mind as it begins a broad review this year of its monetary policy framework that could result in changes to how it goes about ensuring that prices remain stable and employment plentiful, Fed vice chair Richard Clarida said.

U.S. President Donald Trump said that he expects to meet China’s leader, Xi Jinping, soon and said they may nail down the final points of a trade deal.

Canada exports many commodities, including oil, so its economy could benefit from an improved outlook for global trade.

Canadian retail sales fell by 0.1 per cent in December from November to $50.35 billion, due to lower gasoline prices, Statistics Canada said. Analysts had forecast a 0.3-per-cent decrease.

In volume terms, retail sales increased 0.2 per cent.

“The slight increase in volumes will see monthly GDP tracking forecasts around the 0.0 per cent mark for December, which isn’t great, but is better than what we had been fearing heading into the week,” Royce Mendes, a senior economist at CIBC Capital Markets, said in a research note.

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Data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed that speculators cut their bearish bets on the Canadian dollar.

As of Feb. 5, net short positions had fallen to 42,037 contracts from 56,390 in the prior week.

Canadian government bond prices were higher across a flatter yield curve, with the 10-year rising 28 Canadian cents to yield 1.891 per cent.

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