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Loonie ends higher amid solid retail sales data, higher commodities

Canadian dollar coins are displayed on a map of North America.

Paul Chiasson/The Canadian Press

The Canadian dollar closed higher Friday in the wake of a better-than-expected reading on retail sales for January and rising commodity prices.

The loonie ended up 0.26 of a cent at 89.21 cents (U.S) as Statistics Canada said sales were up 1.3 per cent, against the 0.7 per cent rise that had been expected.

The agency also reported that Canada's annual inflation rate fell to 1.1 per cent in February from 1.5 per cent the previous month. But on a month-to-month basis, prices rose 0.8 per cent from January.

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Economic optimism that followed the release of two pieces of U.S. data on Thursday sent commodities higher with the May crude contract on the New York Mercantile Exchange moving up 56 cents to $99.46 a barrel.

The April gold contract gained $5.50 to $1,336 an ounce while May copper rose 2 cents to $2.95 a pound.

The U.S. Conference Board's index of leading indicators, an indicator of future economic activity, rose in February by the largest amount in three months. And a key manufacturing reading, the Philadelphia Fed's manufacturing index, rebounded in March from a negative reading in February.

The data helped persuade investors that the U.S. economy is strengthening to a point where it can withstand higher short-term interest rates.

Federal Reserve chair Janet Yellen said Wednesday that the U.S. central bank could begin raising short-term rates six months after it halts its bond purchases around year's end. The Fed has been cutting back on those purchases – a key element of stimulus that had kept long-term rates low – in $10-billion increments since December, lowering monthly purchases so far from $85-billion to $55-billion.

Yellen's comment on interest rates helped sink the Canadian dollar by about a cent this past week.

Another source of pressure was Bank of Canada Governor Stephen Poloz, who said earlier in the week that interest rate hikes in Canada could be further away than thought.

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He added that a rate cut by the Bank of Canada could not be ruled out.

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