TORONTO: The Canadian dollar powered higher against a globally weaker greenback on Thursday as crude prices rose and weak US retail sales data raised questions about the timing of the Federal Reserve's next interest rate move.
Prices for oil, a major Canadian export, bounced as industry spending cuts and a weaker greenback offset jitters about record supply levels.
The US dollar, which had already weakened broadly following a media report that the Bank of Japan saw further monetary stimulus as counter-productive, was also hurt by weaker-than-expected retail sales and jobless claims data. The US dollar index was down 0.5 percent so far in February, on track for its first monthly loss in eight months.
Market participants had predicted that lower gasoline prices meant more money in consumers' pockets for spending but retail sales data, which declined for the second straight month, have shown otherwise.
"That's thrown a bit of a cautionary red flag up ... you could see the Federal Reserve be a bit more cautious around when they may look to raise rates," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.
The market is currently expecting the US central bank to hike interest rates around mid-year but further weak US data could see the Fed push a decision back to later in the year.
The Canadian dollar finished at C$1.2490 to the US dollar, or 80.06 US cents, firmer than Wednesday's close of C$1.2641, or 79.11 US cents.
Strategists said any strength in the Canadian dollar will be short-lived, saying Bank of Canada comments this week that the Canadian economy was operating below potential continued to weigh.
As a backdrop, Germany, France, Russia and Ukraine agreed on a deal on Thursday that offers a "glimmer of hope" for an end to fighting in eastern Ukraine after marathon overnight talks. .
"There's a real spectrum of factors that, net-net, are, from a global economic perspective, somewhat bullish," said Brad Schruder, director of foreign exchange at BMO Capital Markets.
"This retracement from yesterday when we almost broke C$1.27, is probably more flow related than it was any fundamental shift."
Canadian manufacturing sales data for December are due on Friday. If the data disappoints, the loonie strength could unwind pretty quickly, Smith said.
Canadian government bond prices were higher across the maturity curve, with the two-year up 3 Canadian cents to yield 0.421 percent, and the benchmark 10-year jumped 53 Canadian cents to yield 1.397 percent.
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