Canadian Dollar Falls Against Yen on Japan Stimulus View

The Canadian dollar weakened the most in six months against the yen on speculation the central bank may limit policies to devalue the currency after Japan’s economy minister said the country faces economic risks.

The currency fell earlier today against its U.S. counterpart as Canadian existing home sales fell and manufacturing in the New York region unexpectedly contracted in January, indicating economic headwinds for the nation’s largest trading partner. Japan’s Akira Amari warned currency weakness could negatively impact consumers, signaling the government may avoid pushing the central bank to enact more monetary stimulus.

“Two weeks ago they were trying to weaken the yen and now they’re saying it’s weakening too fast,” David Bradley, director of foreign-exchange trading at Scotia Capital Inc., a unit of Bank of Nova Scotia (BNS), said by phone from Toronto. “That basically turned around dollar/yen, all the yen crosses, euro- yen is quite a bit lower, dollar-yen is quite a bit lower so it’s kind of a risk-off scenario.”

The Canadian dollar, called the loonie for the image of the aquatic bird on the C$1 coin, was little changed at 98.43 cents per U.S. dollar at 5:07 p.m. in Toronto, after declining the most since Jan. 4. One loonie buys $1.0160.

The Canadian currency weakened 0.8 percent versus the yen to 90.21 yen per loonie, after posting its largest drop since June.

Price Swings

A gauge of volatility traded close to the lowest in 12 years. Implied volatility for three-month options on the U.S. dollar versus the loonie touched 5.43 percent It reached 5.32 percent on Dec. 19, the lowest since Oct. 11, 2000. Implied volatility signals the expected pace of currency swings and is quoted and used by traders to set option prices.

The country’s benchmark 10-year bonds rose, with yields falling three basis points to 0.03 percentage point, to 1.91 percent. The 2.75 percent note maturing in June 2022 rose 27 cents to C$107.20.

The Bank of Canada will sell C$3.3 billion ($3.4 billion) of notes maturing in May 2015 tomorrow.

Futures on crude oil, Canada’s largest export, fell 0.7 percent to $93.47 per barrel and the Standard & Poor’s 500 Index rose 0.1 percent.

The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December. The median forecast of 54 economists in a Bloomberg survey called for a reading of zero, which signals no change in conditions. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Economic Data

“Manufacturing activity, the first look still suggests growth is still a challenge in the U.S. economy at the moment and it could be difficult for Canada to really do too much, apart from the crosses, where we’ve seeing movement on euro- Canada and Canada-yen,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto.

U.S. retail sales rose more than expected in December and prices received by U.S. commodities producers fell.

Home resales declined 0.5 percent during December to 35,386 units, the Canadian Real Estate Association said in a statement today from Ottawa. While the number of transactions dropped 17.4 percent from a year earlier, capping an annual decline in transactions.

“Markets are at a loss on how to react right now with no one overriding factor to give it direction, especially U.S./Canada which has been severely range bound,” said John Curran, senior vice president at U.S.Forex Ltd., an online foreign exchange dealer, by phone from Toronto. “U.S.-Canada is not a story, everything else is.”

The loonie has gained 0.9 percent this month versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped about 0.1 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

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

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