Canada's dollar drooped on Friday and government bond prices ramped higher as unexpectedly weak retail sales and inflation data reduced expectations that the Bank of Canada will soon raise interest rates. The data, along with mixed economic reports from other corners of the world, ongoing European debt concerns, and the recent slide by commodity prices, signalled to the market that the central bank will keep its key rate at 1 percent for some time.
The Bank of Canada raised rates three times last year but has stayed on the sidelines since September as it monitors the economy's progress. "With persistent Canadian dollar strength, even at these levels, and with the economic backdrops showing benign data ... I don't think the Bank of Canada should be doing a thing," said John Curran, senior vice-president at CanadianForex.
"With everything that's going on here globally, the recovery that everybody's speaking of is still very fragile. This still could turn downwards for many countries, including Canada." Canada's annual inflation rate stayed at 3.3 percent in April, according to Statistics Canada data on Friday, again above the Bank of Canada's target range of 1 to 3 percent.
A second report showed retail sales were flat in March and actually fell by 0.8 percent in volume terms from February, in a much weaker showing than analysts had forecast. The currency slid as low as C$0.9772 to the US dollar, or $1.0233, following the Canadian data. It had pared some losses to trade at C$0.9730 to the US dollar, or $1.0277, down from Thursday's close at C$0.9682 to the US dollar, or $1.0328.
Both the market and the central bank had expected overall inflation to stay elevated. Governor Mark Carney predicted on Monday that inflation would remain above the bank's target range throughout the second quarter but said inflation expectations remained well-anchored. The steady inflation figure in April was in contrast to the surprising jump in March, and a touch less than economists' expectations of 3.4 percent.