TORONTO: The Canadian dollar strengthened on Wednesday against its US counterpart, which fell on weaker-than-expected US retail sales data, while crude remained under pressure after the World Bank cut its economic growth forecasts for this year and next.
The World Bank forecast the global economy would grow 3 percent this year, below the 3.4 percent it forecast in June, due to disappointing economic prospects in the euro zone, Japan and elsewhere.
Retail sales in the United States fell 0.9 percent in December as demand fell nearly across the board. It was the largest decline in 11 months and sent the US dollar lower.
"One of the most popular trades for 2015 is expectations the US dollar will continue to strengthen this year on the back of policy normalization at the Fed," said senior economist and strategist Charles St-Arnaud of Nomura Securities in London.
"Obviously a weak number can throw a bit of doubt on the story."
At 9:43 a.m. (1443 GMT), the Canadian dollar was trading at C$1.1943 to the greenback, or 83.73 US cents, modestly firmer than Tuesday's close of C$1.1954, or 83.65 US cents.
The currency remains near its weakest levels since April 2009, however, and St-Arnaud said it could hit C$1.25 by mid-2015.
"Everything signals that you'll have a relatively big divergence between monetary policy in Canada and the United States and that should further drive the Canadian dollar lower," St-Arnaud said, adding that next week's Bank of Canada meeting will be key. He cautioned the market may not be ready for a dramatic downward revision to the central bank's forecasts.
Canadian government bond prices were higher across the maturity curve, with the two-year up 5.5 Canadian cents to yield 0.889 percent and the benchmark 10-year jumping 59 Canadian cents to yield 1.536 percent.
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