Canadian dollar gains vs. major peers on U.S. retail growth

The Canadian dollar advanced versus the majority of it 16 most-traded peers after April retail sales unexpectedly rose in the U.S., Canada’s biggest trading partner.

The currency gained with its U.S. counterpart as the 0.1% increase followed a 0.5% drop in March, Commerce Department figures showed in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3% decrease. Canada’s currency climbed against the dollars of New Zealand and Australia, fellow commodities exporters, as crude oil declined for a third day.

“What’s good for the U.S. is generally good for Canada, so in that regard the Canadian dollar will react accordingly,” Mazen Issa, Canada macro-strategist at Toronto-Dominion Bank’s TD Securities, said by phone from Toronto. “Our bias it still towards a weaker Canadian dollar because our expectation over the medium-term is that growth in the U.S. will be much more robust than it will be in Canada. But, for the day at hand, a positive day for the Canadian dollar.”

The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, gained 0.1% to C$1.0093 per U.S. dollar at 10:38 a.m. in Toronto. One loonie buys 99.08 U.S. cents.

Futures on crude oil, Canada’s biggest export, dropped 1.3% to $95.004.79 per barrel in New York as the Standard Poor’s 500 Index of U.S. stocks fell 0.1%.

Canada’s 10-year benchmark government bonds fell, with yields rising three basis points, or 0.03 percentage point, to 1.91%. The 1.5% security maturing in June 2023 lost 24 cents to C$96.26.

Risk Reversals

The cost to insure against declines in the loonie versus its U.S peer were near their highest point in two months. The three-month so-called 25-delta risk reversal rate was 1.37%, near the 1.41 level reached May 10 that was the highest since Feb. 26 Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart reached 6.29%, at almost the highest level since April 17. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

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