Canadian Dollar Drops as U.S. Lawmakers Seek Budget Compromise

The Canadian dollar declined against its U.S. counterpart amid signs lawmakers may find a compromise to avert the so-called fiscal cliff, bolstering prospects for the American economy.

Canada’s currency rallied against the U.S. dollar by the most in five days yesterday after the federal statistics agency said foreign investors had their fourth straight month of net investment in the nation’s securities. Further gains for the so- called loonie may be limited as a technical measure shows it may have rallied too much, too fast. The currency trailed the majority of its 16 most-traded peers today along with the fellow commodity-related dollars of Australia and New Zealand as oil pared earlier gains.

“Anything relating to the fiscal cliff, any positive developments, are certainly going to help the U.S. dollar,” said Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal (BMO), in a telephone interview from Toronto. He said currency flows have declined recently as market participants go on vacation.

The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, fell 0.2 percent to 98.51 cents at 10:26 a.m. in Toronto. One Canadian dollar buys $1.0151. The loonie has gained 0.9 percent this month, paring it quarterly loss to 0.1 percent.

Canada’s dollar fell after the 14-day relative strength index versus the dollar touched 33 yesterday, approaching the level of 30 that indicates a currency may have strengthened too rapidly and is due for a reversal.

Going Long

Futures on crude oil, the nation’s largest export, rose 0.3 percent to $87.49 a barrel in New York after rising as much as 0.8 percent. The Standard & Poor’s Index of stocks gained 0.3 percent.

The loonie has lagged behind other majors amid “a lack of interest to add to what are already fairly aggressive long position in both the Canadian and Australian dollars,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA), said by telephone from Toronto.

Futures traders have increased their bets that the loonie will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 62,533 on Dec. 11, compared with net longs of 57,071 a week earlier.

Bonds Decline

Canadian government bonds fell, pushing the benchmark 10- year note up one basis point, 0.01 percentage point, to 1.84 percent. The price of the 2.75 percent notes maturing in June 2022 rose 10 cents to C$107.92. Yields on Canadian securities maturing in 2041 increased one basis point to 2.41 percent.

“That’s some decent movement in the long end,” said Noel Hebert, chief investment officer at Bethlehem, Pennsylvania- based Concannon Wealth Management, which oversees about $250 million. “Some of this feels like early exits in anticipation of re-entering at better levels.”

U.S. President Barack Obama lowered his tax revenue demand, moving closer to a budget deal with House Speaker John Boehner, as politicians in Canada’s biggest trade parter seek to avoid more than $600 billion in tax increases and spending cuts scheduled to begin in January. They want to replace the immediate deficit reduction with more gradual changes.

Canada’s currency has gained 0.8 percent this year versus nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The greenback has dropped 3.2 percent and the yen has been the biggest loser, tumbling 12.2 percent. New Zealand’s dollar leads gainers, up 5.7 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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