Canadian Dollar Falls on Bets Fed Will Maintain Stimulus

Canada’s dollar dropped against most of its major counterparts as North American currencies slid after a U.S. inflation report supported speculation that the Federal Reserve will maintain monetary stimulus.

The Canadian currency fell along with the greenback and Mexican peso after a U.S. gauge of consumer prices excluding food and energy rose in February less than forecast. The Canadian dollar gained for the 10th week versus the yen in the longest winning streak since 2005 as crude oil, the nation’s biggest export, advanced.

“The Canadian dollar is generally reflective of the strengths and weaknesses of the U.S.,” said Ravi Bharadwaj, a market analyst at Western Union Co. (WU)’s Western Union Business Solutions unit in Washington. “It is not surprising to see it pinch at the heels of the greenback after the consumer prices report.”

Canada’s currency was little changed at 99.17 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0084. Against the yen, the loonie slid 0.2 percent to 84.13, paring its weekly rally to 1.1 percent. The Canadian dollar was down 0.1 percent versus the greenback this week.

Futures on crude oil increased 2 percent to $107.19 a barrel in New York. The Standard & Poor’s 500 Index gained 0.1 percent. The S&P/TSX Composite Index advanced 0.3 percent.

Drop in Bonds

Government benchmark 10-year bonds fell for a fourth straight day, driving the yield up by four basis points, or 0.04 percentage point, to 2.24 percent after touching 2.30 percent, the highest level since Oct. 31. Canadian 10-year bonds yield about six basis points less than their U.S. counterparts. At the end of December, they yielded six basis points more.

Canadian government bonds have lost 1.5 percent this year and are headed for the worst quarter since 2009 as the U.S. recovery accelerates and traders perceive policy makers are containing the European sovereign-debt crisis.

Foreigners were net sellers of Canadian securities in January, marking the first loss in holdings in seven months, government figures showed today. Investors slowed purchases of Canadian bonds to C$1.87 billion ($1.87 billion), following an accumulation of C$3.10 billion in December.

Canada’s dollar, which tends to trade as a proxy for global growth on speculation its economy will benefit from demand for raw materials, is the best performer in the past month among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes, having appreciated 1 percent. The U.S. dollar has advanced 0.4 percent.

“On crosses, we’re very positive on commodity currencies, particularly Canada,” said Geoffrey Kendrick, head of European currency strategy at Nomura Holdings Inc. in London, in a telephone interview. “Canada is basically a high-beta play on U.S. growth.” Crosses are trades with currencies other than the U.S. dollar, and “beta” refers to an asset’s sensitivity to changes in underlying measures of risk appetite.

To contact the reporters on this story: Austen Sherman in New York at asherman18@bloomberg.net; 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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