The Canadian dollar fell to a one-year low against its U.S. peer after confidence among America’s consumers climbed in May to a five-year high, boosting speculation the Federal Reserve could taper its monetary stimulus.
The currency dropped for a third day versus the greenback before Mark Carney makes his final decision on interest rates as Bank of Canada governor tomorrow. All 22 economists surveyed by Bloomberg predict the outgoing governor will leave the benchmark rate at 1 percent before his successor Stephen Poloz takes over June 3. Canada’s dollar dropped versus the currencies of Australia and New Zealand as futures on crude oil and the Standard & Poor’s GSCI (SPGSCI) Index of 24 commodities gained.
“The consumer-confidence data seems to have been a catalyst for broad U.S. dollar buying -- we’re seeing it against the euro and we’re seeing it against the Canadian dollar,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA), said by phone from Toronto. “It suggests the Fed is likely to start its tapering of quantitative easing sooner rather than later.”
The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, fell 0.6 percent to C$1.0398 per U.S. dollar at 5 p.m. Toronto time after reaching C$1.0408, weakest since June 1, 2012. One loonie buys 96.17 U.S. cents.
Canada’s benchmark 10-year government bonds fell, with yields rising 10 basis points, or 0.10 percentage point, to 2.08 percent, the highest since May 4, 2012. The 1.5 percent security maturing in June 2023 lost 84 cents to C$94.84.
Futures on crude oil, Canada’s largest export, snapped four days of losses with a 1 percent gain to $95.13 per barrel in New York.
The Conference Board’s index of U.S. consumer confidence rose to 76.2, the strongest since February 2008 and exceeding the highest estimate in a Bloomberg survey of economists, from a revised 69 in April, data from the New York-based private research group showed today. The median forecast called for an increase to 71.2.
Another report showed U.S. home prices rose in the 12 months through March by the most in seven years as the recovery in residential real estate gained momentum.
The loonie dropped for a third week versus its U.S. peer last week after Federal Reserve Chairman Ben S. Bernanke said the central bank could cut the pace of asset purchases if officials see indications of sustained improvement in economic growth.
“The Canadian dollar’s performance is just dropping off a cliff, which suggests to me a lot of this is flow driven,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “A lot of the longterm CAD bulls are starting to reduce their exposure a bit to Canada.”
Canada’s economy expanded 2.3 percent in the first quarter, compared to 0.6 percent the previous period, Statistics Canada will probably say at the end of this week, according to the median forecast of 22 economists in a Bloomberg News survey.
The Bank of Canada lowered its first quarter growth projection to 1.5 percent from 2.3 percent in April as Carney told reporters, “considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time.”
The warning that the next move on interest rates would be up has been in every Bank of Canada statement for the last year.
“We’re waiting for the press release from the bank to see if they completely take off their hawkish stance -- which I think is unlikely, as this is Carney’s last meeting,” said John Curran, senior vice president at CanadianForex Ltd., an online foreign exchange dealer, by phone from Toronto. “Leaving on this note, after doing such a good job, to see the Canadian dollar careening lower off of that move, I don’t think he’d do it.”
The cost to insure against declines in the loonie versus its U.S. counterpart fell to its lowest point in two weeks. The three-month 25-delta risk reversal rate touched 1.46 percent, the lowest since May 15.
The Canadian dollar is the third-best performing currency in the last three months against nine other developed nation currencies in the Bloomberg Correlation Weighted Index. The loonie gained 2 percent, trailing only the U.S. dollar’s 3.1 percent advance and the pound’s 2.1 percent rise. The Aussie dropped 3.6 percent, the most after the yen’s 7.8 percent decline.
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