Canadian dollar gains as oil and Wall Street rally

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday as a jump in oil prices and improvement in risk appetite offset domestic data showing that retail sales growth stalled in March.

The loonie was up 0.3% at 1.2775 to the greenback, or 78.28 U.S. cents, moving toward the stronger end of its range over the last week or so, which has been between 1.2762 and 1.2895.

"Higher oil prices are helping lift the loonie today," said Erik Nelson, a currency strategist at Wells Fargo in New York. "Brent and WTI (crude oil futures) are both breaking out to the upside and the Norwegian krone (crown) is also outperforming."

Norway, like Canada, is a major producer of oil, which settled 3.4% higher at $114.09 a barrel on signs of tight supply ahead of the U.S. summer driving season.

Wall Street surged as a raft of solid retail earnings and soft economic data eased lingering concerns that the Federal Reserve's aggressive policy tightening would extend beyond expectations.

Canadian retail sales were unchanged in March from February, missing estimates for a 1.4% advance, as lower sales at motor vehicle and parts dealers offset gains in all other subsectors. A preliminary estimate showed that sales grew 0.8% in April.

The Bank of Canada will hike its overnight rate by half a percentage point next Wednesday, according to all 30 economists polled by Reuters, who see interest rates at least a half-point higher by year-end than predicted just one month ago.

Canadian government bond yields rose across a steeper curve. The 10-year was up 0.9 basis point at 2.765%, after touching on Wednesday its lowest intraday level in four weeks at 2.743%.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Jonathan Oatis)