Larry Berman's take on upcoming Jackson Hole meeting
The Canadian dollar held firm against the U.S. dollar on Monday despite a sharp fall in oil prices, as the greenback stumbled on geopolitical fears over North Korea and investors girded themselves for the annual central bank conference in Jackson Hole later this week.
In Canada, investors were also focused on retail sales data due on Tuesday. A Reuters poll of analysts forecast a 0.3 per cent rise, but unchanged when auto sales are excluded.
Adam Button, a currency analyst at ForexLive in Montreal, said the loonie was showing signs of independent strength.
"The Canadian dollar could take off on retail sales ... small signs of strength are leading big moves," Button said.
Last week, the currency touched a two-week high against a greenback weighed by political uncertainty, after Canadian data showed an uptick in the rate of underlying inflation and oil prices jumped.
At 4:00 p.m. ET, the Canadian dollar was trading at $1.2569 to the greenback, or 79.56 cents US, up 0.1 per cent. The loonie traded between $1.2555 and $1.2608 during the session.
"What's surprising is the Canadian dollar is so well bid despite a big fall in oil today," Button said. "The Canadian dollar is showing its resilience."
The traditional correlation between the Canadian dollar and prices of oil has been more tenuous recently as focus shifted toward monetary policy decisions.
U.S. crude oil futures settled at US$47.37 a barrel, down US$1.14 or 2.35 per cent.
There are some expectations Federal Reserve Chair Janet Yellen could highlight the need to keep a watchful eye on risks to inflation goals and financial stability at the Jackson Hole meeting.
"Any hint the Fed is heading to the sidelines, it's going to be ugly [for the U.S. dollar]," Button said.
Markets were also jittery after the start of annual military exercises by South Korean and U.S. forces angered North Korea, which denounced the joint drills as a step toward nuclear war.
Earlier on Monday, domestic data showed wholesale trade slipping by 0.5 per cent in June following eight consecutive monthly increases, greater than the 0.2 per cent forecast by analysts.
Canadian government bond prices were mostly lower across the maturity curve, with the two-year price down one cent to yield 1.25 per cent and the benchmark 10-year falling eight cents to yield 1.88 per cent. The Canada-U.S. two-year bond spread stood at -5.3 basis points, while the 10-year spread stood at -30.1 basis points.