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Loonie closes higher rises amid strong U.S. retail data

A Canadian dollar or loonie is pictured.


The Canadian dollar closed higher Monday as traders took in a strong retail reading from the United States and looked ahead to the Bank of Canada's interest rate announcement.

The loonie ended up 0.22 of a cent to 91.3 cents (U.S.).

The U.S. Commerce Department reported that retail sales for March were up 1.1 per cent from February, higher than the 0.9 per cent rise that economists had forecast.

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The government also revised February to a 0.7 per cent gain, more than double its previous estimate. Sales had fallen in January and December amid severe winter weather.

The data were well received as it also pointed to stronger economic growth for Canada's largest trading partner.

"Although earlier weather-related weakness suggests consumer spending slowed to around 3 per cent in the first quarter after the best performance in three years in the fourth quarter, the sharp rebound in March retail sales suggests a complete recovery in [the second quarter], with spending growth close to 3.5 per cent annualized," said BMO Nesbitt Burns senior economist Sal Guatieri.

"This, in turn, should anchor a solid rebound in GDP growth to 3.3 per cent in [the second quarter] from an estimated 1.2 per cent in [the first quarter]."

Traders are also focused on the Bank of Canada and the central bank's next interest rate announcement on Wednesday. Analysts universally expect the bank to leave its key rate at 1 per cent, where it has been since September, 2010.

And generally, the announcement isn't expected to have much effect on the currency.

"We expect [the Canadian dollar] to be relatively comfortable either side of $1.10 (90.9 cents U.S.) for the next several months, with a shift lower only to come if Governor Poloz shifts his tone to a less dovish one," said Camilla Sutton, chief foreign exchange strategist at Bank of Nova Scotia.

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"However, the stronger the Canadian dollar is, the more likely Governor Poloz will be to maintain his dovish tone, even as the [Bank of Canada] officially holds a neutral tone."

The other major Canadian economic item for this week is the latest read on inflation.

Economists expect that the consumer price index climbed 0.4 per cent in March. They also expect a positive read from the February manufacturing shipments report, which comes out on Tuesday.

Commodity prices were mixed, with May crude on the New York Mercantile Exchange up 31 cents to a six-week high of $104.05 a barrel.

May copper was up 1 cent at $3.05 a pound while June gold bullion gained $8.50 to $1,327.50 an ounce.

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