The Canadian dollar declined for a third day versus its U.S. peer amid speculation the Federal Reserve may indicate when it will begin slowing monetary stimulus in the U.S., the nation’s largest trading partner.
The currency weakened even as futures on crude oil, Canada’s largest export, rose 0.9 percent to $98.65 per barrel in New York and the Standard & Poor’s 500 Index (SPX) of U.S. stocks gained 0.8 percent. Bank of Canada Governor Stephen Poloz makes his first public speech tomorrow in Oakville, Ontario.
“A lot of chop but no real progress, and that will remain the case until we hear from the Fed,” said Greg T. Moore, a currency strategist in Toronto at Toronto-Dominion Bank. Canada’s dollar has gained 1.6 percent this month versus its U.S. peer, reflecting “the idea that tapering isn’t entirely imminent and that tapering is not tightening. The Fed is still in fact buying assets and using its balance sheet.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.3 percent to C$1.0212 per U.S. dollar at 5 p.m. in Toronto. It touched a one-month high of C$1.0137 on June 14. One loonie buys 97.92 U.S. cents.
Canada’s 10-year benchmark bonds fell, with yields adding one basis point, or 0.01 percentage point, to 2.16 percent. The 1.5 percent security maturing in June 2023 fell 8 cents to C$94.13.
Trading in over-the-counter foreign-exchange options on the U.S. dollar-Canadian dollar pair totaled $606 million, or 2.3 percent of $26.1 billion overall, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Greenback-loonie options trading was 81 percent less than the average for the past five Tuesdays at a similar time in the day.
Poloz’s speech tomorrow follows testimony to lawmakers on June 6, when he reiterated his predecessor Mark Carney’s view that the central bank’s policy rate will rise as the economy grows while declining to give “running commentary” on whether the loonie is overvalued. His remarks will be published on the Bank of Canada’s website at 12:25 p.m.
Poloz will lead the central bank’s governing council in making its next interest-rate decision on July 17.
The official statement from the next meeting “could be watered down to provide a slightly more dovish tilt than those under the Carney regime,” UBS AG strategists including Cameron N. Umetsu in Stamford, Connecticut, wrote in a note to clients today. “One must assume that Poloz would be happy to see a further retreat in the Canadian dollar from here even if he is not explicit about it.”
Saying a “strong U.S. dollar theme will gain further traction going forward,” the bank recommends buying the greenback if it weakens toward support at C$1.0120 heading into the Bank of Canada meeting.
Fed Chairman Ben S. Bernanke will hold a press conference tomorrow after Federal Open Market Committee policy makers end their two-day meeting and issue a statement and economic forecasts. Bernanke said last month the central bank could reduce its $85 billion monthly bond-purchase program, known as quantitative easing, if there’s sustainable improvement in employment.
“The market is anticipating hawkish rhetoric from the Fed,” Dean Popplewell, head analyst at the online currency trading firm Oanda Corp., said by phone from Toronto. “The Canadian dollar was overvalued and the market is very much happy to own U.S. dollars and play the percentages.”
The one-month so-called 25-delta risk reversal rate fell to 1.47. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.
Canada’s currency has lost less than those of its fellow commodity exporters in the past month among a basket of 10 developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The loonie dropped 1.8 percent, compared with the New Zealand dollar’s 3.5 percent loss and the Australian dollar’s 5.3 percent fall. The greenback declined 2.5 percent and the yen gained 6.4 percent.
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