Canadian Dollar Drops on Speculation Economy Falling Behind U.S.

The Canadian dollar fell to a 20-month low as U.S. manufacturing picked up in May, adding to evidence a strengthening U.S. economy is outpacing its neighbor.

The currency weakened after a report June 28 showed Canada’s economy slowed in April, with 0.1 percent growth domestic product growth from 0.2 percent the previous month. U.S. 10-year yields traded at almost a two-year high as factory orders grew 2.1 percent in May, compared with a revised 1.3 percent in April. The U.S. is forecast to have added jobs last month while Canada’s payrolls declined, according to separate surveys by Bloomberg before reports July 5.

“We’re still biased to see yields move higher and a stronger U.S. dollar, so Canada will get caught in that crossfire,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD securities unit in Toronto.

The loonie, as the Canadian dollar is known, fell 0.5 percent to C$1.0544 per U.S. dollar at 5 p.m. in Toronto, reaching the weakest level since Oct. 4, 2011. One loonie buys 94.84 U.S. cents.

The currency’s 14-day relative strength index against the dollar was at 67.7, almost the 70 level that some traders see as a signal an asset has moved too far, too fast and may be due to reverse course.

Bonds Gain

Canada’s benchmark 10-year government bond rose, with yields falling four basis points, or 0.04 percentage points, to 2.40 percent. The 1.5 percent security maturing in June 2023 added 30 cents to C$92.08. U.S. 10-year yields fell one basis point to 2.47 percent in New York.

Canadian corporate bond issuance reached a record high in the first half of this year, fueled by debt sales of the country’s biggest financial firms.

BCE Inc. (BCE), Canada’s largest telecommunications provider, and toll-road operator 407 International Inc. were among firms that sold C$55 billion ($52 billion) in bonds this year, 25 percent higher than the first six months of 2012 and the most since at least 1999, according to data compiled by Bloomberg. BCE was the biggest issuer of debt excluding the banks, which accounted for half of corporate bond issuance in the period.

U.S. nonfarm payrolls increased 165,000 in June, while the unemployment rate declined to 7.5 percent from 7.6 percent the previous month, according to a Bloomberg survey of economists. Canada sends nearly 70 percent of its exports to the U.S.

Jobs Reports

Canada’s payrolls dropped 5,000 drop in June, according to a Bloomberg survey. That would compare with a 95,000 increase in May, the nation’s largest one-month employment increase in more more than a decade.

“The data seems to be favoring the U.S. lately and that’s seen Canada fall behind a little bit,” said Don Mikolich, executive director of foreign exchange sales at Canadian Imperial Bank of Commerce, by phone from Toronto.

The Standard & Poor’s GSCI Index of 24 commodities rose 0.8 percent, while crude oil advanced 1.7 percent to $99.63 a barrel in New York, touching the highest level since September 2012.

U.S. President Barack Obama said last week his administration would approve TransCanada Corp. (TRP)’s Keystone XL pipeline if it “does not significantly exacerbate the problem of carbon pollution.” The administration has said a decision on Keystone will come in months.

“When the Keystone was in play, the loonie was at multi-year highs,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “It is still considered a commodity currency.”

The loonie is down 0.2 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The greenback gained 6.8 percent.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; Jeff Marshall at jmarshall75@bloomberg.net

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

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