Canadian Currency Weakens as U.S. Economy Overshadows Recovery

Canada’s dollar fell for the first time in three weeks against its U.S. counterpart as commodity prices weakened and the quickening pace of the American economy overshadowed the nation’s recovery.

The currency slid yesterday and May 9 as a strengthening U.S. dollar climbed against most of its 16 major counterparts after American job gains spurred bets the Federal Reserve will taper its stimulus. Canada’s dollar rose versus most major peers. Canadian inflation slowed to zero in April, a report next week is forecast to show.

“We’re seeing the U.S. dollar appreciating a lot over the past few days and better sentiment regarding growth in the U.S.,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said yesterday in a phone interview. “It leads to a broad-based appreciation of the U.S. dollar, but because Canada will benefit from long-term growth in the U.S., the Canadian dollar is up more than peers.”

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0100 per U.S. dollar this week in Toronto. It touched C$1.0014 on May 9, the closest approach to parity since February. One Canadian dollar buys 99.01 U.S. cents.

The nation’s government bonds fell, pushing yields on benchmark 10-year debt up 12 basis points, or 0.12 percentage point, to 1.89 percent. Yields touched 1.92 percent, the highest level since March 15. The price of the 1.5 percent securities due in June 2023 sank C$1.05 to C$96.50

Bond Auction

Three-year bond yields increased six basis points to 1.13 percent and touched 1.14 percent, a six-week high. The Bank of Canada will auction C$2.7 billion ($2.67 billion) of the debt on May 15. The 1 percent securities mature in August 2016.

Futures traders pared bets that the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed yesterday.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the dollar compared with those on a gain -- so-called net shorts -- was 51,916 on May 7, compared with net shorts of 67,848 a week earlier.

The loonie has gained 1.7 percent this year against nine other developed-nation currencies monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has climbed 3.7 percent, while the yen has fallen 13 percent.

Futures on crude oil, Canada’s biggest export, fell for the first time in four weeks, slipping 0.1 percent to $96.04 a barrel in New York and touching $93.37, the lowest since May 2. Spot gold dropped 1.5 percent to $1,448.55 an ounce. Raw materials account for about half of the nation’s export revenue.

Slow Pace

The Canadian economy is expanding at the slowest pace since 2009 as the prices of exports such as oil and gold fall and consumers cut spending. The Bank of Canada last month lowered its growth outlook for this year to 1.5 percent from 2 percent because of lower business investment and government spending.

The U.S. dollar climbed May 9 after a Labor Department report showed the number of Americans filing claims for jobless benefits unexpectedly dropped last week to a five-year low. The U.S. jobless rate fell to 7.5 percent in April, a four-year low, and payrolls expanded by 165,000 jobs, more than forecast, a government report showed May 3.

The data spurred speculation the Fed will slow earlier than previously anticipated its $85 billion a month of bond purchases under the quantitative-easing stimulus strategy.

QE Bets

“The wider narrative to me seems there is a push into a stronger U.S. dollar, especially with comments about the need to taper QE,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, said yesterday by phone.

TD on April 19 lowered its year-end forecast for the loonie to C$1.09 per U.S. dollar. The median projection in a Bloomberg survey of 43 economists and strategists is for C$1.00.

Other central banks, including those of Japan, Australia and the euro region, are pumping cash into their economies or cutting interest rates, prompting investors to seek higher-yielding assets.

Net employment in Canada rose by 12,500 jobs in April and the unemployment rate was unchanged at 7.2 percent, Statistics Canada said in Ottawa yesterday. Economists surveyed by Bloomberg News projected a 15,000-position gain and 7.2 percent unemployment. Full-time (CANLFLNC) employment increased by 36,000 in April while part-time positions dropped by 23,600.

Canada’s consumer price index was unchanged last month, compared with a 0.2 percent gain in March, economists surveyed by Bloomberg forecast before the nation’s statistics agency reports the data on May 17. The Bank of Canada’s inflation target is 2 percent.

To contact the reporter on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net.

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

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