The Canadian dollar climbed nearly a full U.S. cent on Tuesday to reach 96.46 cents US, pushed higher by the release of a blowout May retail sales report.
The loonie hasn't closed above 96 cents US since early 1977. The sharp increase came after Statistics Canada reported that retail sales jumped 2.8 per cent in May.
This was the best showing in a decade and far ahead of the modest 0.4 per cent rise that economists were forecasting.
Barring the auto segment, sales jumped 2.3 per cent. Retail sales saw gains in every province and territory and Quebec led the way with an increase of 4.9 per cent.
"This massive gain confirms that the Canadian consumer is on a roll, backstopping evidence from soaring home and auto sales,'' said BMO Nesbitt Burns chief economist Doug Porter.
"Perhaps most notably, the gains are fanning out from Alberta, with almost all provinces posting impressive growth. This clearly puts additional Bank of Canada tightening in play, above and beyond a second quarter-point rate hike in September.''
The retail sales report also heightened expectations of higher interest rates.
Desjardins forecasts that the central bank's overnight rate will hit 5 per cent by the end of the year, from its current rate of 4.5 per cent.
Weakness in the U.S. dollar, amid concerns over the fallout from subprime mortgage loans, was also supporting the Canadian currency.
Fears grew after Countrywide Financial Corp. -- the largest U.S. mortgage lender -- reported a steep drop in profit as mortgage banking earnings were cut in half.
With files from The Canadian Press
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