Canada's Dollar Has Weekly Decline Against Euro on Bank of Canada Outlook
Canada’s dollar had a weekly drop against most of its major counterparts including the euro after Bank of Canada Governor Mark Carney reiterated on March 1 that a strong currency poses challenges to exports.
The loonie stayed within a cent of a three-year high against the greenback after a U.S. report showed Canada’s largest trading partner added fewer jobs in February than economists forecast. Crude oil, Canada’s biggest export, rose to a 29-month high on concern Libyan unrest will spread to other oil producers in North Africa and the Mideast and curb exports.
“The commodities story is obviously good for Canada, but at the same time, the strength of the currency is taking some of the monetary stimulus out of the bank,” said Steve Butler, director of foreign-exchange trading at Bank of Nova Scotia’s Scotia Capital unit in Toronto. “The bank was as least-hawkish as it could be.”
The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, traded at C$1.3616 versus the euro at 5 p.m. in Toronto, compared with C$1.3579 yesterday. The loonie had a 1.3 percent weekly drop.
Crude oil for April delivery increased 2.5 percent to $104.42 a barrel in New York trading. The contract has increased 7.1 percent this week and advanced 30 percent from a year ago.
The Bank of Canada, which led the Group of Seven nations with three interest-rate increases last year, held its target rate for overnight lending between commercial banks at 1 percent on March 1, where it has been since September.
Carney on Currency
Exporters still face “considerable challenges” from a currency trading near three-year highs and “poor relative productivity,” Carney and five deputies said in a statement.
“The market was expecting Carney to be a little bit more hawkish than he was, and that’s the reason for the slowdown in the appreciation of the Canadian dollar,” said Firas Askari, head currency trader at Bank of Montreal in Toronto.
The rate on the June 2011 bankers’ acceptance contract dropped today to 1.46 percent, from 1.50 percent the day before the Bank of Canada’s decision. So-called Bax contracts have settled an average of about 0.20 percentage point above the central bank’s target rate since 1992, Bloomberg data show.
The loonie traded at 97.34 cents per U.S. dollar, compared with 97.20 yesterday, after reaching 96.84 on March 1, the strongest level since November 2007. One Canadian dollar purchases $1.0273. The Canadian currency had a 0.4 percent weekly gain versus its U.S. counterpart.
‘Self-Defeating’
“It’s a self-defeating argument trying to buy the Canadian dollar on the expectations that they’re going to raise interest rates,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. A stronger loonie “is softening the inflation trajectory all the time, which inherently means they’re not going to have to tighten rates,” he said.
Government bonds rose for the first time in three days, pushing the yield on the 10-year benchmark down six basis points, or 0.06 percentage point, to 3.33 percent. The price of the 3.50 percent note maturing in June 2020 increased 49 cents to C$101.34.
The euro gained against most of its major counterparts this week, including the Canadian dollar, after European Central Bank President Jean-Claude Trichet signaled yesterday that policy makers may increase the main refinancing rate next month from a record low 1 percent to contain inflation.
U.S. Payrolls
U.S. employers added 192,000 workers in February after a gain of 63,000 in the previous month, the Labor Department reported today. The median forecast of 84 economists in a Bloomberg News survey was for an increase of 196,000. The unemployment rate unexpectedly dropped to 8.9 percent last month from 9 percent.
Canada’s employers added 25,000 jobs in February after an increase of 69,200 in the previous month, according to the median forecast of 23 economists before Statistics Canada’s March 11 report. The unemployment rate may have decreased to 7.7 percent, from 7.8 percent.
The Ivey purchasing managers’ index was 69.3 in February after a January reading of 41.4, according to a statement on the University of Western Ontario business school’s website today. Readings of less than 50 indicate purchasing by governments and companies declined.
To contact the reporter for this story: Charles Mead in New York at cmead8@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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