CANADA FX DEBT-Canadian dollar’s weekly gain shrinks on retail sales miss

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Canadian dollar weakens 0.3% against the greenback

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For the week, the loonie gains 0.1%

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Canadian retail sales rise 0.2% in May

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Canadian 10-year yield eases 8.1 basis points

By Fergal Smith

TORONTO, July 21 (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Friday as investors reduced bets for another interest rate hike by the Bank of Canada after domestic data showed retail sales rising less than expected in May.

Canadian retail sales rose 0.2% in May, missing estimates for a 0.5% gain, and were likely unchanged in June, pointing toward a slowdown in economic growth that would allow the BoC to leave interest rates unchanged.

Money markets see a 23% chance that the BoC will raise its benchmark rate in September, down from roughly 30% before the data.

“Today’s May retail sales report set the tone,” said George Davis, chief technical strategist at RBC Capital Markets.

“Persistent Canadian bond outperformance relative to the U.S. in the 2- and 10-year sectors also weighed on CAD, as did broad-based USD strength to end the week.”

The U.S. dollar rose against a basket of major currencies as a Reuters report that the Bank of Japan is leaning towards keeping its key yield control policy unchanged next week weighed on the yen.

The Canadian dollar was trading 0.3% lower at 1.3207 to the greenback, or 75.72 U.S. cents, after moving in a range of 1.3154 to 1.3226. For the week, the currency was up 0.1%.

Canada’s Pacific dock workers’ union said it reached a new tentative contract agreement with employers and that its leadership would vote on Friday on whether to put the deal up for ratification by members. Ratification would reduce uncertainty for Canada’s export-driven economy.

One of Canada’s major exports is oil. It settled 1.9% higher at $77.07 a barrel, while the Canadian 10-year yield eased 8.1 basis points to 3.417%.

It was trading 5.9 basis points further below its U.S. equivalent at a gap of 41.5 basis points. (Reporting by Fergal Smith; editing by Grant McCool)