The Canadian dollar declined to the weakest level since June versus its U.S. counterpart as concern economic growth is slowing increased and investors sought a refuge from a renewal of global financial market turmoil.
The currency fluctuated as oil, the nation’s largest export, fell to a seven-week low. Federal Reserve Chairman Ben S. Bernanke said spending cuts set to take effect in three days would harm the economy of Canada’s largest trading partner. A slowdown could prompt the Bank of Canada to drop warnings of impending interest rate increases later this year, according to a person familiar with a Medley Global Advisors report, who declined to be identified.
“Bernanke’s focus on the increasing burden the economy will bear from the fiscal side is negative for U.S. growth and therefore negative for Canada,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto.
The Canadian dollar, known as the loonie for the image of the water fowl on the C$1 coin, was little changed at C$1.0261 per U.S. dollar at 5 p.m. Toronto time. One loonie buys 97.46 U.S. cents. It weakened to as low as C$1.0304.
Futures on crude oil fell 0.4 percent to $92.74 per barrel in New York amid estimates that U.S. crude inventories rose. The U.S. is the nation’s largest trading partner and biggest buyer of crude oil.
Canada’s benchmark 10-year bonds were little changed to yield 1.86 percent. The 2.75 percent security maturing in June 2022 increased 3 cents to C$107.55.
Canada’s central bank will likely keep its guidance intact when policy makers meet March 6, though they could eliminate the reference later if business investment and exports fail to show improvement, according to the person familiar with the Medley report. A Medley spokeswoman declined to comment when reached by telephone in New York.
“This Medley report basically says the Bank of Canada, last month they said that tightening is perhaps less imminent, and it basically says if the data continues to be poor, the references for higher rates could be scrapped,” Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto.
Bank of Canada Governor Mark Carney said yesterday that some of the downside risks to the economy he highlighted last month are materializing and policy makers are sticking to their assessment that interest-rate increases have become less urgent.
Fourth-quarter growth seems to have been slower than projected by the central bank, while inflation seems to be in line with forecasts, Carney said in London, Ontario.
Bernanke warned $1.2 trillion of U.S. government cuts set to take effect in three days would be a “burden” on the “still-moderate” U.S. economic recovery in testimony before the U.S. Senate Banking Committee today.
Options traders are the most bearish on the Canadian dollar in six months. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded as high as 1.49 percent, the most since Sept. 5. It averaged 1.48 percentage points during the past 12 months.
The Canadian dollar is down 1.3 percent this year among 10 developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar is up 2.5 percent and the yen is down four percent.
The loonie may be due to strengthen, a technical measure indicated. Its 14-day relative-strength index against the U.S. dollar fell to 20, its fifth day below the 30 level some traders see as a sign an asset has moved too much, too fast, and may be about to reverse direction.
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