TORONTO, April 21 (Reuters) – The Canadian dollar weakened to a three-week low against its U.S. counterpart on Friday as domestic retail sales data suggested that higher borrowing costs are taking a toll on the economy.
Canadian retail sales dipped by 0.2% in February from January, and are expected to drop another 1.4% in March, according to data from Statistics Canada.
“High mortgage rates are starting to bite Canadians’ wallets,” said Adam Button, chief currency analyst at ForexLive. “Canada is particularly sensitive to higher interest rates and that will lead to divergence in U.S. and Canadian economic performance in the second quarter and beyond.”
The Bank of Canada has lifted its benchmark interest rate to a 15-year high of 4.50% to tackle inflation, leading to upward pressure on mortgage rates after a number of years in which Canadians borrowed heavily to participate in a red-hot housing market.
The Canadian dollar was trading 0.5% lower at 1.3545 to the greenback, or 73.83 U.S. cents, after touching its weakest intraday level since March 31 at 1.3563.
For the week, the currency lost 1.4% as investors raised bets on an interest rate hike next month by the Federal Reserve and the price of oil, one of Canada’s major exports, fell.
Oil clawed back some of its weekly decline on Friday, settling 0.7% higher at $77.87 a barrel.
Canadian government bond yields were lower across the curve. The 2-year dropped 6 basis points to 3.746%, while it was trading 8 basis points further below its U.S. counterpart to a gap of about 44 basis points.
Reporting by Fergal Smith; editing by Jonathan Oatis
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