TORONTO: The Canadian dollar firmed against the US dollar on Wednesday, at one point hitting its strongest since mid-January, following disappointing US economic data that pushed the greenback to more than three-month lows against a basket of major currencies.
US retail sales missed forecasts in April, holding steady as households scaled back big-ticket purchases such as cars. Meanwhile, April import prices in the United States fell for a 10th straight month, likely due to the strong US dollar.
Market participants were hoping for more upbeat signs of an improving second quarter in the United States following a soft first quarter.
"Combine the soft data, which really hurt the US dollar and dollar index, and commodities prices, which came off late in the day ... our view is, Canada probably had a bit more room to run here," said Don Mikolich, executive director, foreign exchange sales at CIBC World Markets.
"The Fed looks very firmly set for September or later now on the rate hike side. Canadian numbers have been holding in and oil prices have been supportive."
The Canadian dollar was trading at C$1.1967 to the greenback, or 83.56 US cents, stronger than the Bank of Canada's official close of C$1.2018, or 83.21 US cents.
The currency had hit C$1.1928 earlier, breaking through a recent C$1.1940 barrier. It was the loonie's strongest level since Jan. 15, 2015. Its weakest level for the day was C$1.2028.
Mikolich, noting there was little standing in the way of a stronger Canadian dollar in the short term if oil prices can hold above $60 a barrel and Canadian data remains respectable, said the loonie could move below C$1.19 in the coming sessions barring negative domestic news.
Over the medium to longer term, the currency is still expected to slide on the prospects of a Fed hike, he added.
Canadian government bond prices were mixed across the maturity curve, with the longer-term bonds falling. The two-year price was flat, yielding 0.695 percent and the benchmark 10-year slid 33 Canadian cents to yield 1.835 percent.
The Canada-US two-year bond spread was 11.5 basis points, while the 10-year spread was -46.1 basis points.
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