Canada’s Dollar Weakens Amid Wagers Economy Lagging Behind U.S.

The Canadian dollar fell for the first time in three days versus its U.S. counterpart as manufacturing sales dropped in June, adding to concern growth is lagging behind that in the nation’s biggest trade partner.

The currency sank versus most major peers as reports in the U.S. showed housing starts increased in July and productivity rose in the second quarter, boosting bets the Federal Reserve will slow stimulus as soon as September. The U.S. dollar climbed. Canada’s 10-year government bonds fell for a fifth day, pushing yields to the highest level in two years.

“We saw weaker-than-expected data in Canada that has weighed on the loonie against the U.S. dollar,” Ravi Bharadwaj, a senior market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “More than anything, the market has focused on Fed tapering, pushing everything else to the side. That has boosted the U.S. dollar, which in turn is weighing on Canada.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.3 percent to C$1.0336 per U.S. dollar at 5 p.m. in Toronto, after losing as much as 0.5 percent earlier. The currency fell 0.5 percent versus the greenback this week. One Canadian dollar buys 96.75 U.S. cents.

Yields Climb

Benchmark 10-year government bond yields rose three basis points, or 0.03 percentage point, to 2.70 percent and reached 2.74 percent, the highest since July 2011. The price of the 1.5 percent debt due in June 2023 lost 28 cents to C$89.72.

Foreign holdings of Canadian bonds fell by a record in June as investors retained the proceeds of maturing government securities. The C$19 billion ($18.4 billion) decline in bonds was led by a C$10.6 billion drop in government-issued debt and another C$8.83 billion reduction in government-owned company bonds, Statistics Canada said today from Ottawa.

Futures traders decreased for a fifth straight week their bets that the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the loonie compared with those on a gain -- so-called net shorts -- was 9,081 on Aug. 13, the least since February, compared with net shorts of 10,436 a week earlier.

Canada’s currency has lost 0.7 percent this year against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 3.9 percent, while the euro has rallied 5.1 percent.

‘Very Narrow’

The loonie traded in a one-cent range this week, between C$1.0370 and C$1.0281, amid speculation the U.S. Federal Reserve will begin slowing monetary stimulus soon. Fed policy makers have been discussing when to begin tapering the pace of $85 billion in monthly bond purchases under their quantitative-easing strategy amid an improving economy. The purchases tend to devalue the greenback.

“We are still trading in a very narrow, choppy range that suggests the market doesn’t have a clear direction at this point,” Jack Spitz, managing director of foreign exchange in Toronto at National Bank of Canada, said in a telephone interview. “Over the next few months the Canadian dollar is likely to weaken in conjunction with the anticipation of tapering of QE, which will take the U.S. dollar higher.”

Canada’s gross domestic product will grow 2.4 percent in 2014 after gaining 1.7 percent this year, according to the median forecasts in a Bloomberg survey of economists. The U.S. economy will expand 2.7 percent, after growing 1.6 percent in 2013, a separate survey forecast.

Economic Data

U.S. new-home construction rose 5.9 percent to an 896,000 annualized rate from a revised 846,000 pace in June that was higher than previously reported, Commerce Department data showed today. The measure of U.S. employee output per hour increased at a 0.9 percent annualized rate, after a 1.7 percent decline in the first quarter, Labor Department data showed. A Bloomberg survey forecast a 0.6 percent advance.

Canadian factory sales fell 0.5 percent to C$48.2 billion, the nation’s statistics agency said today in Ottawa. Economists forecast a 0.3 percent increase according to the median estimate in a Bloomberg survey with 16 responses.

It was the third decline in four months. Manufacturing sales have dropped 3.7 percent over the past year, hampered by a recession in the euro zone and a modest recovery in the U.S., which buys three-quarters of the nation’s exports.

Canada’s dollar fell even as oil, the nation’s biggest export, reached the highest level in two weeks. Crude-oil futures gained as much as 0.8 percent to $108.17 a barrel in New York, the highest since Aug. 2, before trading at $107.69. The commodity rose 1.6 percent this week.

Standard & Poor’s GSCI index of 24 raw materials, rose 0.2 percent today and climbed 2.4 percent this week. The S&P 500 index of stocks declined 0.3 percent today and slid 2.1 percent this week.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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

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