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Canadian Currency Strengthens After Touching a Three-Week Low on Outlook
Canada’s currency rose from a three- week low that it touched as commodity and stock declines and signs of a waning global economic recovery dimmed the appeal of currencies tied to growth.
“The Canadian dollar has seemed to claw back some ground,” Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank in Toronto. “The Canadian dollar fell a long, long way, and there’s still some second-guessing going on.”
The currency, nicknamed the loonie, rose against 15 of its 16 most-traded counterparts, surpassing others that are tied to growth, including the Australian and New Zealand dollars. It weakened over the past two days versus the dollar after the Federal Reserve said the economic recovery is slowing in the U.S., the nation’s largest trading partner.
The loonie appreciated 0.3 percent to C$1.0429 at 4:44 p.m. in New York, from C$1.0464 yesterday, after earlier sliding to C$1.0494, the weakest level since July 22. One Canadian dollar buys 95.89 U.S. cents.
The Standard & Poor’s 500 Index ended the day down 0.5 percent after dropping earlier as much as 1.2 percent. Contracts for September delivery of crude oil, Canada’s biggest export, fell 3 percent to $75.70 a barrel in New York. The loonie tends to rise and fall with commodities and stocks as a proxy for risk appetite.
‘King of Commodities’
“The Canadian dollar is king of commodities today,” Lascelles said after Australia reported weak employment data. “I’d hesitate to suggest that particular trend can last forever.”
The Aussie fell earlier after a government report showed the unemployment rate unexpectedly rose to 5.3 percent in July, compared with the median forecast for it to remain unchanged at 5.1 percent, the statistics bureau said today.
Canada’s government bonds fell, pushing the benchmark 10- year note’s yield up 4 basis points, or 0.04 percentage point, to 3.01 percent. It earlier touched 2.96 percent, the lowest level since April 2009. The price of the 3.5 percent security due in June 2020 decreased 30 cents to C$104.18.
The nation’s bonds have returned investors 5.39 percent this year, according to a Bank of America Merrill Lynch index.
Pacific Investment Management Co. founder Bill Gross said he favors Canada and Brazil over the U.S. for bond investments, according to the Globe and Mail.
‘Preferable Destination’
Gross told the newspaper in an interview he’s “in awe” of countries such as Canada that have a low debt-to-gross-domestic- product ratio and solvent financial institutions. “North of the border” has become a “preferable destination” to what he sees in the U.S., Gross said. He’s been raising his “exposure” to Brazilian and Canadian government bonds, he said.
“Global sentiments outside Canada are playing a much more important role in moving the loonie,” Matthew Strauss, senior currency strategist at Royal Bank of Canada, the nation’s largest lender, said by phone from Toronto.
The Fed said in its policy statement on Aug. 10 that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” Initial jobless claims in the U.S. unexpectedly rose, increasing by 2,000 to 484,000 in the week ended Aug. 7, Labor Department figures showed today in Washington. It was the highest level since mid-February.
Canada’s trade deficit unexpectedly widened to C$1.13 billion ($1.08 billion) in June, Statistics Canada reported yesterday.
“If we do see a further fallout in risk sentiment -- stock markets and, more importantly for Canada, commodity prices falling -- we could well see a test of C$1.055 followed by a move higher,” RBC’s Strauss said.
To contact the reporter on this story: Alex Kowalski in New York at akowalski13@bloomberg.net
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