Canadian Dollar Drops Below Parity as Risk Appetite Ebbs

Canada’s dollar weakened below parity with its U.S. counterpart for the first time since August as investors’ risk appetite declined.

The currency fell for a fifth day as U.S. equity trading was canceled with Hurricane Sandy barreling toward the East Coast. Moody’s Investors Service warned Oct. 26 it may cut the ratings of six Canadian-based lenders.

“The Canadian dollar is the marquee currency today, breaking parity,” Adam Button, an analyst at forexlive.com in Montreal, said in a phone interview. “We’re continuing to see a fairly strong risk-off tone, while many market participants were expecting an extremely quiet session because of the closures in New York. Canadian banks were put on review for a downgrade, and the market didn’t get to respond last week, and it is today.”

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, weakened 0.4 percent to C$1.0010 per U.S. dollar at 5 p.m. in Toronto. It hasn’t lost for five consecutive days since May. The Canadian dollar last closed weaker than parity on Aug. 6. One Canadian dollar buys $0.9990.

The Standard & Poor’s GSCI Index of 24 raw materials declined 0.4 percent.

U.S. stock trading was canceled tomorrow for a second day, joining bond markets, as 90-mile-per-hour winds and surging seas from the hurricane bore down on New York and paralyzed American capital markets.

Government Surplus

The Canadian government will post a surplus of C$3.2 billion ($3.2 billion) in the 2015-16 fiscal year following combined deficits of C$36.3 over the next three years, Parliamentary Budget Officer Kevin Page said in a report posted on his office’s website today.

“The forecast from the Canadian budget office is another headwind for the loonie,” Button said. “When you see that kind of forecast, it really takes the shine off the Canadian dollar. It certainly calls into question any ideas about a rate hike in 2013.”

Bank of Canada Governor Mark Carney said last week the need for higher interest rates has become “less imminent,” a day after strengthening the case for a removal of monetary stimulus.

Carney’s emphasis on high debt levels was highlighted when Moody’s placed Bank of Nova Scotia (BNS), Toronto-Dominion Bank (TD) and four other lenders on review for possible downgrade, citing the heightened risk to Canada’s economy from rising consumer debt and real estate prices.

Canadian bank debt dropped 0.04 percent this month, the only finance bonds to lose money among those from 27 countries tracked by a Bank of America Merrill Lynch index. The average gain was 0.6 percent, the index shows.

Technical Analysis

The loonie’s weakening below parity means it’s potentially the top of a minor bear wedge and the move upwards, though prevailing, may start to “grind” lower, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said in a note to clients today.

“We remain firmly committed to the bullish” U.S. dollar outlook, even as the market bumps up against what is likely to be firm resistance around the 200-day moving average, he said. Last week’s move up to the upper 99-cent region “puts funds on target for a push” to C$1.0050 to C$1.0150 in the near term. Resistance is an area on a chart where sell orders may be clustered.

U.S. dollar investors should buy into modest losses in spot at 99.60 to 99.65, he said.

The loonie has gained 0.5 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The greenback has dropped 1.7 percent, one of the top three decliners along with the yen and euro.

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

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

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