Dollar bulls emerge after upbeat U.S. retail sales, oil currencies soft

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(Reuters) – The dollar stayed firm against most of its major peers on Friday thanks in part to upbeat U.S. retail sales data, while falling oil prices kept the Canadian dollar pinned near a five-year low.

Crude oil briefly slid below $59 a barrel for the first time in 5-1/2 years, extending a sharp decline that prompted a surprise interest rate cut from the Norwegian central bank on Thursday.

The greenback climbed as high as 119.555 yen JPY= on Thursday, bouncing off a two-week low of 117.445, after a closely-watched report showed U.S. retail sales rose a forecast-beating 0.7 percent in November.

At 0615 GMT (01:15 a.m. EST) Friday, the dollar was at 118.89, up 0.2 percent from late U.S. levels.

The U.S. retail data provided fresh evidence of underlying momentum in that economy and highlighted the diverging outlooks between the United States and most of the developed world.

“Firm November data continues to point to a hawkish adjustment in forward guidance at next week’s FOMC meeting and we expect this to keep the USD well supported into year-end,” analysts at BNP Paribas wrote clients, referring to the Federal Reserve’s policy meeting on Dec. 16-17.

The yen has been also pressured by expectations that Japanese Prime Minister Shinzo Abe’s ruling party is on track for a landslide victory in an election on Sunday. That would let him claim a fresh mandate for his economic revival policies, known as “Abenomics”.

Still, the yen’s failure to respond to sharp gains in Japanese shares on Friday suggested many players are now keen to take profits from their yen short positions, said chief trader at a Japanese brokerage.

“I suspect even if some chase the dollar/yen higher on the election outcome, speculators will come in immediately to take profits, probably shifting market focus to the Fed.”

Japanese shares .N225 closed up 0.7 percent Friday.

The euro dipped back to $1.2370 EUR= from a near two-week high of $1.2496. It last traded at $1.2395, hovering near the 38.2 percent retracement level of its rise from $1.2247 to $1.2496 in the past few sessions.

The euro’s fall came after the European Central Bank’s second offering of almost zero-cost loans to banks drew only tepid interest, underlining fragile confidence in the euro zone and making ECB money-printing appear all but inevitable.

Sellers hit commodity currencies hard, driving both the Canadian and Australian dollars to fresh multi-year lows overnight. The loonie slumped to a five-year low of C$1.1551 per USDCAD=D4 and was last at C$1.1537.

Its Australian counterpart touched a 4-1/2-year trough of $0.8214 AUD=D4. The Aussie’s decline was egged on by the head of the Reserve Bank of Australia, who said in an interview with a local paper that he would like to see the currency fall back to 75 U.S. cents.

Still, the fact that RBA Governor Glenn Stevens did not signal any urgency to cut interest rates imminently saw the Aussie edge back to $0.8275.

That was not the case for the Norwegian crown, which skidded to its lowest in over 10 years after its central bank unexpectedly cut interest rates. The bank said it could ease policy further still because lower oil prices were hurting the economy’s growth prospects.

The dollar rallied to 7.3451 crowns NOK=, reaching a high not seen since September 2003, on Friday. The euro jumped to a 5-1/2 year high of 9.1087 crowns EURNOK=R

Other currencies feeling the heat of weaker oil prices included the Mexican peso MXN=, which dropped to its lowest in nearly six years at 14.8155 per USD overnight.

Markets reacted mutedly to three pieces of economic data China released at 0530 GMT (12:30 a.m. EST). China’s industrial output grew by a less-than-expected 7.2 percent in November from a year earlier, though retail sales expanded 11.7 percent, beating forecasts, the National Bureau of Statistics said.

Fixed-asset investment, an important driver of Chinese economic activity, grew 15.8 percent in the first 11 months of the year from the same period last year, in line with forecasts but easing slightly. ECONASIA

(Editing by Jonathan Oatis and Richard Borsuk)