Canadian dollar weakens

The Canadian dollar weakened against its broadly firmer US counterpart on Friday after domestic retail sales data disappointed, although some losses were pared as oil prices rose. Friday's loss snapped a nearly two-week winning streak for the loonie, according to Reuters data. It last fell on August 5, although on Wednesday it closed slightly lower based on the Bank of Canada's official close.
"If anything, you might have expected a larger slump in the Canadian dollar, and perhaps that's what we will see on Monday," said Adam Button, currency analyst at ForexLive. Canadian retail sales unexpectedly fell 0.1 percent in June on weaker sales of food and alcohol, while fewer consumers shopped at general merchandise stores.
"It just suggests that maybe the Canadian consumer is growing a bit tired of carrying the burden of growth," said David Watt, chief economist at HSBC Canada. Still, the Bank of Canada is unlikely to react until it sees more data for the third quarter, Watt said. The implied probability of an interest rate cut this year from the central bank edged up to 23 percent from 20 percent before the data, overnight index swaps data showed.
In a separate report, Canada's annual inflation rate cooled as expected in July to 1.3 percent from June's 1.5 percent rate, pulled down by cheaper gasoline prices. The Canadian dollar ended at C$1.2858 to the greenback, or 77.77 US cents, much weaker than Thursday's close of C$1.2771, or 78.30 US cents. The currency's strongest level of the session was C$1.2774, while its weakest was C$1.2892. On Thursday, the loonie touched its highest in nearly eight-weeks at C$1.2765.
US crude prices settled up 30 cents at $48.52 a barrel, supported by speculation that some major oil producers will agree to freeze output. Speculators reduced bullish bets on the loonie for a third straight week, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions fell to 12,473 contracts in the week ended August 16 from 15,366 contracts in the prior week.
Canadian government bond prices were mixed across the maturity curve, with the two-year price flat to yield 0.573 percent and the benchmark 10-year falling 35 Canadian cents to yield 1.078 percent. The curve steepened as the spread between the 2-year and 10-year yields widened by 3.7 basis points to 50.5 basis points. On Thursday, the spread hit its narrowest since June 2008 at 46.8 basis points.