Canadian Dollar Falls to Two-Year Low as Recovery Trails U.S.

The Canadian dollar fell to an almost two-year low as data pointing to tepid economic growth collided with a show of confidence by the Federal Reserve in the U.S. recovery.

The currency declined the most in 21 months as Canada’s inflation accelerated at a slower rate than economists forecast and retail sales rose less than projected after Bank of Canada Governor Stephen Poloz, in his first public speech, said that the recovery needs “patience.” Oil, the nation’s largest export, plunged and government bond yields rose the most in 12 years. Canada’s gross domestic product growth slowed in April, a June 28 report is forecast to show.

“Canada is certainly underperforming,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said by phone yesterday. “Soft retail sales is likely to weigh on GDP, and currencies are reacting to that.”

The loonie, as the Canadian dollar is known, fell 2.8 percent on the week to C$1.0457 per U.S. dollar in Toronto. It touched C$1.0489, the weakest level since Nov. 25, 2011. One loonie buys 95.63 U.S. cents.

The currency has declined six straight days and the weekly drop was steepest since a 5.1 percent tumble in the five days ending Sept. 23, 2011.

Oil, Bonds

Crude oil, the country’s biggest export, ended the week 4 percent lower at $93.94 per barrel in New York. The Standard & Poor’s 500 Index of stocks dropped 2.1 percent.

Canadian government bonds fell the most since November 2001, pushing 10-year note yields up 33 basis points, or 0.33 percentage point, to 2.45 percent, the highest level since October 2011.

The U.S. dollar gained against all 16 of its most-traded peers this week, while global stocks and commodities plunged, as Fed Chairman Ben S. Bernanke said he may begin phasing out four years of unprecedented asset buying this year should risks to the U.S. economy continue to decrease.

U.S. growth will outpace Canada’s for the next two years, according to economists surveyed by Bloomberg and Moody’s Analytics Inc. The Canadian economy will expand by 1.7 percent this year while the U.S. accelerates to 1.9 percent. By 2014, the U.S. will attain growth of 2.7 percent to 3 percent, according to the Bloomberg survey and Moody’s. Canada’s economy will accelerate to 2.4 percent.

Data Watching

“Part of what the Fed’s done is really shifted the market into data-watching mode,” Sutton said. “The important piece is what transpires in the broader markets -- the emerging-market shift into developed economies and further commentary from any central-bank official.”

Canada’s growth is slowing as the consumers who led it out of recession pare spending and exporters facing a shaky global economy look increasingly unlikely to offset the decline.

The consumer price index rose 0.7 percent in May from a year ago, after a 0.4 percent April gain that was the slowest since October 2009, Statistics Canada said yesterday. A separate report showed retail sales rose 0.1 percent in April to C$39.5 billion ($38.1 billion). Economists forecast a 0.2 percent gain in a Bloomberg survey with 23 responses.

Gross domestic product increased 0.1 percent in April, according to the median forecast of 14 economists, after a 0.2 percent increase in output in March.

Weaker Profile

“I see nothing in the recent Canadian data that suggests anything other than sub-2 percent growth in 2013 as support from business investments and consumer spending fail to materialize as some have predicted or hoped,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said yesterday in an e-mail.

Canada’s dollar fell after Poloz, who took office June 3, said on June 19 that a pick-up in foreign demand for Canada’s exports, particularly in the U.S., is critical to bolstering confidence. The U.S. and China are Canada’s largest trading partners.

While the Bank of Canada has been alone in the Group of Seven in signaling that its next move may be to raise interest rates, economists are anticipating Poloz won’t tighten policy until the second quarter of next year at the earliest.

“We have a weaker Canadian profile than we had before due to China and lower commodity prices,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce in Toronto, said by phone yesterday. CIBC lowered its forecast yesterday to C$1.05 by the fourth quarter from C$1.03 previously.

The loonie will end the year at C$1.03 according to the median forecast of 59 economists in a Bloomberg survey, up from C$1.02 at the end of May.

‘Complete Collapse’

“Unlike the Aussie dollar, we don’t see a complete collapse in the Canadian dollar,” Grantham said, due to reliance on U.S. growth.

Futures traders decreased their bets that the loonie will decline against the U.S. dollar, June 18 figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 26,087, compared with net shorts of 35,907 a week earlier.

The Canadian dollar has fallen 1.3 percent over the past month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. It trails only the currencies of fellow commodities exporters Australia, New Zealand and Norway, down 5.7 percent, 4.9 percent and 4.5 percent. The U.S. dollar gained 0.8 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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