Canada Dollar Falls as U.S. Economic Strength Supports Fed View

The Canadian dollar fell against most of its major peers after reports showed the U.S. economy is strengthening, fueling speculation the nation’s largest trading partner has room to slow monetary stimulus.

The currency erased an earlier advance versus its U.S. counterpart after orders for U.S. durable goods rose more than forecast and consumer confidence (CONCCONF) climbed, adding to evidence the Federal Reserve may taper its bond-buying. Crude oil, the nation’s largest export, was little changed after gaining earlier in New York trading.

“We’ve moved into a world where data prints have become the be-all and end-all, with the focus on the Fed putting us all into data-watching mode,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said by phone.

The loonie, as the Canadian dollar is known, fell 0.1 percent to C$1.0515 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 95.10 U.S. cents.

Canadian government bonds fell, pushing 10-year note yields up five basis points, or 0.05 percentage point, to 2.54 percent, the highest level since August 2011. The 1.5 percent security maturing in June 2023 lost 44 cents to C$90.96.

The yield has climbed 48 basis points in June on speculation the U.S. central bank is preparing to pare its bond purchase program.

Economic Data

Bookings for U.S. goods meant to last at least three years climbed 3.6 percent for a second month, the Commerce Department reported today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 3 percent increase.

Confidence among U.S. consumers climbed in June to 81.4, the highest level in more than five years, exceeding all estimates in a Bloomberg survey and signaling spending will probably accelerate after cooling this quarter. The median forecast of 77 economists surveyed by Bloomberg called for a reading of 75.1.

“The U.S. data this morning was cause for a little bit of volatility for dollar-CAD,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “Durable goods reinforces the theme that the U.S. recovery is gaining traction and the U.S. is viewing any development in terms of what it means for QE tapering.”

Fed Chairman Ben S. Bernanke said June 19 the U.S. central bank may begin tapering bond purchases this year and end them in mid-2014. The central bank has been buying $40 billion of mortgage-backed securities and $45 billion of U.S. government debt each month to put downward pressure on borrowing costs.

China Demand

Canada’s commodity-driven economy is being undermined by slowing demand from China, the world’s biggest consumer of metals and energy, while exports of crude oil are hampered by pipeline bottlenecks.

A government report due June 28 is forecast to show gross domestic product growth in April slowing to an annualized pace of 1.4 percent from 1.7 percent in March, according to the median forecast of economists surveyed by Bloomberg.

Canada underperforming growth in the U.S. this year has been a major theme for the year, so GDP becomes a very important data print,” Sutton said.

The Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities has fallen 5.4 percent this year. Crude-oil futures were 0.1 percent higher at $95.28 per barrel in New York, after rising as much as 1 percent.

“If the commodity selloff does pick up, then the Canadian dollar has more room to fall,” Moore said. TD downgraded its Canadian-dollar forecast in April to C$1.06 by the end of the first half and to C$1.10 at year-end.

The Canadian dollar has fallen 1.3 percent during the past month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. It trails only the currencies of fellow commodities exporters New Zealand, Norway and Australia, down 4.2 percent, 4 percent and 3.8 percent. The U.S. dollar gained 0.8 percent.

To contact the reporters 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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