The Canadian dollar fell as stocks dropped after the European Central Bank’s balance sheet soared to a record on lending to the region’s banks, adding to concern fiscal turmoil will slow growth.
The currency declined after earlier strengthening to the highest level in almost three weeks as crude oil, Canada’s biggest export, trading above $100 a barrel indicated a brighter outlook for commodity-linked assets.
“There’s U.S. dollar buying across the board,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York, citing “further euro woes” and the size of the ECB balance sheet. “We’re still at the mercy of European Union news.”
The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, dropped 0.6 percent to C$1.0244 per U.S. dollar at 5 p.m. Toronto time. It touched C$1.0126, the strongest since Dec. 8. One Canadian dollar buys 97.62 U.S. cents.
Lending to euro-area banks jumped 214 billion euros ($280 billion) to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. Its balance sheet increased 239 billion euros to 2.73 trillion euros, it said.
The Standard & Poor’s 500 Index decreased 1.3 percent. Futures on crude oil, Canada’s biggest export slipped 1.9 percent to $99.46 a barrel in New York.
The loonie rose against the majority of its most-traded counterparts.
“Even with the reversal, the Canadian dollar is doing better than most Group of 10 currencies today,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “More stable economic and monetary-policy trends for Canada are helping contribute to overall resilience in this currency.”
The best performers during the past month among the 10 major currencies tracked by Bloomberg are commodity-linked. The loonie is up 1.8 percent, compared with gains of 2 percent for the Australian dollar and 2.1 percent for the New Zealand dollar.
The loonie rose earlier after Italian 10-year bonds gained for the first time in five days as the nation’s borrowing costs plunged at an auction of 9 billion euros ($11.8 billion) of debt. The rate on 10-year Italian bonds fell as much as 22 basis points to 6.78 percent. Similar-maturity Spanish yields dropped 24 basis points to 5.10 percent.
The Rome-based Treasury sold 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the last auction on Nov. 25. Demand was 1.7 times the amount offered, compared with 1.47 times last month.
Canadian 10-year government bonds yielded 1.96 percent today, compared with 3.23 percent at the end of last year. The yield touched 1.837 percent on Dec. 16, the lowest level in Bloomberg data going back to 1989.
The bonds yielded four basis points more than equivalent- maturity U.S. Treasuries, compared with 32 basis points more on Sept. 5, the most this year, and 17 basis points less at the end of last year.
Canada’s bond market is beating the rest of the world by the most since at least 1997 as the nation’s unscathed credit rating draws investors seeking safety from global debt turmoil.
The Bank of America Merrill Lynch Canada Broad Market Index, with 1,192 bonds and a par value of C$1.16 trillion ($1.14 trillion), returned 9.56 percent this year through Dec. 23, led by longer-term debt of Quebec and Canadian Pacific Railway Corp. That compares with 5.39 percent for the firm’s Global Broad Market Index. The difference of 4.17 percentage points is the most according to Merrill records dating to 1997.
To contact the reporter on this story: Chris Fournier in Montreal at firstname.lastname@example.org