The currency headed for its biggest monthly loss since September as crude oil, Canada’s biggest export, fell to a six-month low. Regional Spanish governments’ financial struggles added to global demand for safety, even amid forecasts a report next week will show expansion in the Canadian economy. Ten-year government bond yields reached the lowest since at least 1989.
“Risk aversion has been the dominant theme and the biggest driver of the Canadian dollar,” said Maria Jones, a currency trader at Toronto-Dominion Bank’s TD Securities unit in Toronto. “We are poised to weaken further if there is no European resolution. The risk of a disorderly euro breakup and the growth implications that come with that have turned global sentiment negative, and that’s dragging on the Canadian dollar.”
The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.7 percent to C$1.0293 per U.S. dollar yesterday in Toronto, from C$1.2222 on May 18. It reached C$1.0313, the weakest level since Jan. 9, and was poised for a 4.1 percent loss for the month. One Canadian dollar buys 97.15 U.S. cents.
Canada’s currency has lost 4.8 percent since reaching its strongest level in 2012, 98 cents to the greenback, on April 27.
The 14-day relative-strength index for the loonie versus the U.S. currency dropped to 26.7 yesterday, the lowest level since October and its third consecutive day below 30, suggesting the Canadian dollar is headed for a reversal of recent losses. A reading below 30 signals that a currency is oversold and may be poised for a correction.
The loonie will strengthen to parity with the U.S. dollar by the end of June and gain to 99 Canadian cents by year-end, according to a Bloomberg survey of 42 economists and analysts.
Canada’s government bonds climbed, pushing yields on the benchmark 10-year note down to 1.796 percent yesterday, the lowest level in data compiled by Bloomberg going back to 1989. The yields ended the week at 1.81 percent, down seven basis points, or 0.07 percentage point. Two-year note yields dropped 12 basis points to 1.09 percent.
The loonie sank this week versus its U.S. counterpart on concern Europe’s crisis would worsen even after data showed Canadian retail sales rose more than forecast in March. They gained 0.4 percent after dropping 0.2 percent the prior month. A Bloomberg News survey had forecast an increase of 0.3 percent.
Canada’s economy grew in March after unexpectedly shrinking the previous month, the government may say next week. Gross domestic product expanded 0.3 percent after contracting 0.2 percent in February, economists in a Bloomberg survey forecast before Statistics Canada reports the data on June 1.
“The external picture is in the driver’s seat in Canada as global uncertainties persist,” Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc, said May 24. “The currency is in a tug-of-war between stronger internal fundamentals against an investor backdrop that remains reluctant to flood into riskier assets.”
European leaders failed to come up with a plan at a summit May 23 to resolve their debt crisis as wagers grew that Greece would abandon the euro. Greeks vote on June 17 after an inconclusive election May 6 where an anti-austerity party placed second. Catalan President Artur Mas repeated a call yesterday for Spain’s central government to help the nation’s regions gain access to funding, spurring concern the crisis was broadening.
The greenback rose against all of its 16 most-traded counterparts except Brazil’s real as investors sought refuge.
“The market is still very unsettled by what’s going on in Europe,” Steve Butler, managing director in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said on May 24. “The fundamentals in Canada are still OK, and are certainly less worse than a lot of other places. In spite of all of that, the U.S. dollar remains supreme given the flight-to-quality trade.”
Crude oil fell for a fourth week. July futures touched $89.28 a barrel in New York on May 23, the least since November. They slid 1.9 percent on the week. The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials tumbled 2.9 percent, its biggest weekly drop this year. Raw materials including oil account for about half of Canada’s export revenue.
“The theme continues to be risk aversion,” Dean Popplewell, chief strategist in Toronto at the online currency-trading firm Oanda Corp., said yesterday. “That continues to drag Canada down against the dollar, despite good fundamentals.”
Bank of Canada Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.
Odds of a higher rate by policy makers’ October meeting rose to about 85 percent on April 27 after Carney’s comments, according to Bloomberg calculations based on overnight index swaps. They fell to 10 percent as of yesterday.
The Canadian dollar declined 0.2 percent over the past month against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar strengthened 5 percent, and the yen climbed 7.5 percent, on refuge demand amid the European crisis. The euro fell 1.1 percent.
The difference in the number of wagers by hedge funds and other large speculators on an advance by the Canadian dollar versus its U.S. counterpart compared with those on a drop -- so-called net longs -- was 38,555 in the week ended May 22, down from 51,005 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed. The total was 70,223 for the week ended May 4, the most since March 2011.
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