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U.S. Dollar turns upward, yen slips as economic outlooks diverge

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The U.S. dollar turned upward against major currencies for the first time this week as U.S. yields held steady, Japan’s economic outlook worsened and the Reserve Bank of New Zealand surprised markets by hinting at a higher interest rates.

The dollar index rose as much as 0.4% and crossed above 90 on Wednesday afternoon in New York, but still remained near January lows as the market tapped the brakes on its steady slide since March.

Benchmark yields on 10-year U.S. Treasuries stayed within their range from the day before and were edging up higher at 1.58% after an auction of 5-year notes.

The foreign exchange markets are wary of taking trends too far right now because key U.S. economic data is coming out on Thursday and Friday, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Most important is Friday’s release of an inflation measure watched closely by the U.S. Federal Reserve. If it is stronger than expected, yields could rise and power the dollar higher. If weaker, the Fed’s low interest rate outlook could continue and the dollar’s downtrend could resume.

“Caution ahead of the event risk in the latter part of the week is helping to put a tentative floor under the dollar,” Manimbo said.

Since March the dollar index has lost more than 3% as many other economies have begun to catch up with the pace of U.S. coronavirus vaccinations and as their interest rates have shown more promise of rising.

Against the Japanese yen on Wednesday, the dollar gained as much as 0.3% and topped 109 yen.

The Japanese government slashed its economic outlook for the first time in three months, citing new weakness in private consumption and business conditions because of coronavirus emergency measures.

The yen is likely to underperform as Japan’s economic outlook worsens, according to Win Thin, global head of currency strategy at Brown Brothers Harriman.

Yen weakness could offset the currency’s usual appeal as a safe haven.

After the New Zealand central bank hinted at a possible interest rate hike by September of next year, the kiwi rose more than 1% against the U.S. dollar

The RBNZ is the second major central bank after the Bank of Canada to nod toward pulling back on easy money policies.

The change drove up New Zealand government 10-year yields and reminded traders to anticipate shifts in tone from other monetary authorities, despite further insistence from policymakers at the U.S. Federal Reserve that it is too early to discuss tightening.

“There are now several central banks that appear to be closer to a tightening cycle than the Federal Reserve, and markets are sensing that,” said Imre Speizer, Westpac’s head of New Zealand strategy.

Currencies of New Zealand, Canada and Norway are driven by expectations of central bank policy, Speizer said.

The dollar’s rise came at the expense of the euro and the Canadian dollar. The euro lost 0.5% to the dollar as euro zone yields fell on new dovish signals from the European Central Bank. At $1.2187 the euro was still up 4% since March, however.

The U.S. dollar appreciated to 1.2118 Canadian dollars from 1.2062 on Tuesday.

China’s onshore and offshore yuan strengthened to three-year highs versus the dollar. The onshore currency broke through 6.40 – a key psychological level – to trade at 6.39 <CNY=CFXS>.

A day earlier, major Chinese state-owned banks had bought dollars at that level in a move viewed as an attempt to cool the rally, sources said.

Cryptocurrencies bitcoin and ether were up a fraction of 1% and steady after a volatile weekend.

Iran has banned the energy-intensive mining of cryptocurrencies such as bitcoin for nearly four months, as the country faces major power blackouts in many cities.

 

(Reporting by David Henry in New York, Elizabeth Howcroft in London and Kevin Buckland in Tokyo; editing by Mark Heinrich)

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Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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