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Canada's Dollar Drops Versus Greenback as Risk Flags Before U.S. Jobs Data
Canada’s currency depreciated versus the greenback after the biggest one-day rally in three months on concern U.S. job losses will stall the global economic recovery.
“Risk sentiment has not repeated yesterday’s orgy of risk appetite,” David Watt, senior currency strategist in Toronto at Royal Bank of Canada’s RBC Capital Markets unit, wrote in an e- mail. “The Canadian dollar made a big run yesterday and I think it was overdone.”
The Canadian dollar fell 0.3 percent to C$1.0532 per U.S. dollar at 4:21 p.m. in Toronto, from C$1.0498 yesterday, when it rose 1.5 percent. The loonie, as the currency is sometimes known because of the waterfowl on the one-dollar coin, reached C$1.0673 two days ago, the weakest level since July 6. One Canadian dollar buys 94.94 U.S. cents.
The currency dropped the last three weeks after U.S. home sales declined 12 percent in July and Canada’s economy slowed to a 2 percent annualize growth rate in the second quarter, driving investors out of higher-yielding assets. Tomorrow’s U.S. non- farm payrolls report is keeping a lid on risk appetite, Watt said. Canada lost 9,300 jobs in July, the first decline of the year.
The jobs report from the U.S. Labor Department tomorrow will show payrolls fell 100,000 in August, reflecting the dismissal of temporary workers hired by the government to conduct the census, according to the median estimate of 78 economists surveyed by Bloomberg News.
Stronger Loonie
Canada’s currency will strengthen to C$1.03 against the U.S. dollar by the middle of next year, according to the median forecast in a Bloomberg News survey of 29 economists.
Nonfarm payrolls tomorrow, the Bank of Canada interest-rate decision on Sept. 8 and Sept. 6 holiday market closures in Canada and the U.S. are keeping the Canadian dollar trading in a relatively tight range, according to Firas Askari, head currency trader at Bank of Montreal’s BMO Capital unit.
Bank of Canada Governor Mark Carney said last month that further action will be “weighed carefully against domestic and global economic developments.” The central bank raised its policy rate by 25 basis points at its June and July meetings. It stands at 0.75 percent. Economists trimmed forecasts for the policy rate by year-end to 1 percent last month, from 1.5 percent in July, according to the weighted average of 11 estimates in a Bloomberg News survey.
“I think he does hike on Wednesday, but with a bit of a dovish statement,” Toronto-based Askari wrote in an e-mail.
RBC Capital’s Watt wrote: “Looking ahead to the Bank of Canada, it seems an even more cautious turn is anticipated, even if they hike.”
Global Equities
Canadian Prime Minister Stephen Harper indicated he doesn’t plan to bolster the government’s stimulus efforts, saying he will stick to a plan that will begin focusing on debt reduction as of next year. Harper, speaking to reporters in Kitchener, Ontario, said that private sector job growth, a completely functional financial system and rising interest rates are signs the government should move its focus away from stimulus.
The MSCI World Index, a gauge of equities in 24 developed nations, gained 0.7 percent after climbing 2.9 percent yesterday, the most since May, and the Standard & Poor’s/TSX Composite Index rose 0.9 percent to 12,111, the most this week. Crude for October delivery increased 1.4 percent today to $74.95 a barrel on the New York Mercantile Exchange, after gaining yesterday as much as 3.6 percent. Crude is Canada’s biggest export.
Government bonds fell, with the yield on the benchmark 10- year rising 1 basis point, or 0.01 percentage point, to 2.86 percent. The price of the 3.5 percent security maturing in June 2020 fell 10 cents to C$105.38.
To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net Mary Childs in New York at mchilds5@bloomberg.net
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