Canadian Dollar Falls Most in Eight Weeks on Economic Slowdown

Canada’s currency declined the most in eight weeks against its U.S. peer as global reports signaled an economic slowdown, damping demand for higher-risk assets.

The Canadian dollar dropped for a second day as euro-area services and manufacturing output fell to a 39-month low in September and China’s manufacturing probably contracted for an 11th month. An index of U.S. leading economic indicators slid in August and manufacturing in the Philadelphia region shrank for a fifth straight month in September. Canada’s inflation rate in August from a year earlier is expected to hold steady at 1.3 percent when the Statistics Canada report is released tomorrow.

“Selling pressure has naturally come into the market place, especially with the risk-off tone” after the Chinese manufacturing data, Aaron Fennell, a futures specialist at the Bank of Nova Scotia (BNS)’s ScotiaMcLeod unit in Toronto, said in a phone interview. “Hedgers start locking in the Canadian currency at these prices because we haven’t seen pricing above par with the U.S. dollar for a while.”

The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, slipped 0.3 percent to 97.69 cents per U.S. dollar at 5 p.m. in Toronto, after declining as much as 0.7 percent, the most since July 23. One Canadian dollar buys $1.0237.

Oil fell to a six-week low, sliding as much as 1.4 percent to $90.66 a barrel in New York, before paring losses to trade 0.1 percent lower. Oil is Canada’s largest export.

The Standard & Poor’s 500 Index (SPX) was little changed after falling as much as 0.8 percent.

Bonds Gain

Canadian government bonds advanced for a fourth day, the longest streak in almost a month, with the yield on the 10-year benchmark falling three basis points, or 0.03 percentage point, to 1.86 percent. The 2.75 security maturing in June 2022 added 22 cents to C$107.89.

Mortgage bonds are maintaining their appeal amid a housing slump as the Canada Housing Trust sold C$5 billion ($5.1 billion) of five-year bonds yesterday to yield 34 basis points more than federal benchmarks. Canada Housing Trust is the financing arm of Canada Mortgage & Housing Corp., a government mortgage-insurance agency.

The preliminary China purchasing managers’ index reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC. The final number will be released Sept. 29. A figure below 50 would extend the longest run of contraction readings in the survey’s eight-year history.

Loonie Breach

The Canadian dollar may fall to its lowest level in two weeks against its U.S. counterpart now that it has broken a key short-term support level, according to Toronto-Dominion Bank (TD), citing technical indicators.

Canada’s currency has weakened to the upper end of a range of 97 cents per U.S. dollar and sustained the move, opening it up for a further loss to 99.02 cents, according to Shaun Osborne, chief currency strategist at TD Securities. That would be its weakest level since Sept. 6. TD forecasts that the Canadian dollar will depreciate to $1.05 by the end of the year, according to a Bloomberg survey.

“The general flow of news and sentiment continues to suggest the risk is for dollar-Canada to move a little higher still,” Osborne said today in a note to clients. The cross is “liable to remain higher in the short run,” he said.

To contact the reporter on this story: Katia Dmitrieva in New York at edmitrieva1@bloomberg.net

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

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