Canadian Dollar Declines the Most in a Month Before Central Bank Meeting

Canada’s dollar fell the most in a month versus the greenback and traded near a seven-month low against the euro before a meeting tomorrow at which economists predict the Bank of Canada will leave interest rates unchanged.

The loonie, as the currency is sometimes known, weakened for a third straight day against the greenback after reaching parity last week for the first time since April. The U.S. dollar has declined against all of its 16 most-traded peers during the past month. Canada’s currency pared declines after stocks and crude oil, the nation’s largest export, rose.

“The U.S. dollar is bouncing from oversold levels” versus the Canadian dollar, David Watt, senior currency strategist in Toronto at Royal Bank of Canada’s RBC Capital unit, wrote in an e-mail. He said the Canadian currency’s reaction might have been “a bit slow” to the expectation of a pause in interest-rate increases by the Bank of Canada.

The loonie dropped as much as 1.2 percent, the most since Sept. 7, to C$1.0228 per U.S. dollar, and was down 0.6 percent to C$1.0169 at 4:46 p.m. in Toronto, from C$1.0104 on Oct. 15. One Canadian dollar buys 98.34 U.S. cents.

All 18 economists in a Bloomberg survey predict Bank of Canada policy makers will leave the benchmark overnight interest rate at 1 percent. Governor Mark Carney became the first Group of Seven central banker to raise borrowing costs since July 2008 when he lifted the overnight rate by a quarter-percentage point to 0.5 percent in June. He has increased it twice since then.

‘No Move’

“The market is expecting no move tomorrow,” Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital unit, wrote via e-mail. “The real surprise would be a move or a more hawkish statement.”

There’s been a “U.S. dollar bounce” and the Canadian dollar has “weakened against the crosses,” he wrote, referring to trades in currencies other than the greenback.

The loonie dropped 0.4 percent to C$1.4183 versus the euro, near the C$1.4226 reached on Oct. 8, the weakest since March.

The Standard & Poor’s 500 Index increased 0.7 percent. Crude for November delivery added as much as 2.5 percent to $83.28 a barrel in New York.

Canada’s benchmark two-year bond yields fell two basis points, or 0.02 percentage point, to 1.41 percent, as the price of the 1.5 percent security maturing in December 2012 rose 4 cents to C$100.18.

Foreign investors bought a net C$11.1 billion ($10.9 billion) of Canadian securities in August, led by corporate bonds, Ottawa-based Statistics Canada said today.

Overseas Demand

Overseas investors purchased C$10.8 billion of bonds in August, including C$5.3 billion of corporate debt and C$3.2 billion from government-owned companies. Non-residents also bought C$995 million of stocks, and divested of C$705 million of money-market paper.

Economists predicted a C$6 billion net purchase of Canadian securities, according to the median of four estimates by Bloomberg News.

The greenback is down 4 percent against the Canadian dollar during the past three months, and is the worst-performing major currency during that period, on speculation the Fed will announce more measures to stimulate the economy next month, further debasing the currency. The greenback is down 14 percent versus the Australian dollar in the past 3 months.

“I’m not bullish on the U.S. dollar right now, but the selloff has been so sharp and persistent that a bounce is very likely,” RBC’s Watt said. “I remain focused on parity, but wouldn’t be surprised to see the Canadian dollar fluttering around C$1.03 or C$1.0350 versus the U.S. dollar near term.”

A “key resistance threshold” of C$1.0350 will influence whether the next move is up or down, Watt said. Resistance refers to the upper boundary of a trading range, in this case for the U.S. dollar, where sell orders may be clustered.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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