Canadian Dollar Falls to Four-Week Low Amid Speculation on Fed

Canada’s dollar slid to the lowest in almost four weeks as commodities fell for a fourth day and stocks sank amid bets the Federal Reserve may slow quantitative-easing stimulus in the nation’s biggest trade partner.

The currency extended losses, falling against most major peers, after a report showed building permits dropped in June for the first time this year. The discount applied to Canadian heavy oil, the nation’s biggest export, was almost the biggest in three months. Canada’s payrolls grew by 10,000 jobs last month after losing positions in June, data due Aug. 9 are forecast to show.

“For dollar-Canada, the bigger driver at the moment is QE-tapering expectations,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank in Toronto. “Our expectations are in September. The Canadian employment report is the biggest thing on the calendar and could drive the Canadian dollar in either direction.”

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0423 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0445, the weakest level since July 11. One Canadian dollar buys 95.91 U.S. cents.

Government bonds rose, pushing yields on benchmark 10-year debt (GCAN10YR) down two basis points, or 0.02 percentage point, to 2.50 percent. The yields reached 2.60 percent on Aug. 2, the highest level since August 2011. The price of the 1.5 percent securities due in June 2023 gained 14 cents to C$91.36.

Bond Auction

The Bank of Canada auctioned C$2.7 billion ($2.6 billion) of three-year bonds today, with an average yield of 1.373 percent. The 1 percent securities due in August 2016 drew C$7.1 billion in bids for a bid-to-cover ratio of 2.64. The average ratio at the past five sales of the debt was 2.76.

The Canadian currency fell 1.1 percent last week, the most since June, amid concern the Fed will start slowing monetary stimulus as soon as next month as the U.S. economy strengthens. The American central bank buys $85 billion of Treasuries and mortgage bonds each month in a strategy designed to put downward pressure on borrowing costs.

Fed Bank of Cleveland President Sandra Pianalto said today a tapering of the stimulus may be warranted if the labor market continues to strengthen. She spoke at a conference in Cleveland.

Chicago Fed President Charles Evans, among the strongest proponents of the unprecedented efforts to provide stimulus to the U.S. economy, said yesterday he “would clearly not” rule out a decision to start curbing monthly bond purchases next month. He spoke to reporters in Chicago.

‘Event Risk’

“People could be hesitant to put on risk positions ahead of September because there is significant event risk being built up in market participants in relation to tapering,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said by phone.

Canada’s dollar lost 2.3 percent in the past three months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The currencies of Australia and New Zealand, fellow commodity exporters, slid 11 percent and 3.8 percent. The greenback rose 2 percent.

Standard & Poor’s GSCI index of raw materials fell 0.8 percent, and the S&P 500 Index of stocks declined 0.4 percent. Crude-oil futures dropped 1 percent to $104.24 a barrel in New York and touched $104.10, the lowest in a week.

The discount to the North American benchmark price for Canadian heavy oil was $22.50 after closing yesterday at $23.25, the most since May. The discount shrank in June to $9.25, its narrowest this year.

Reduced Demand

“We’re getting less dollars for each barrel than we were previously,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., said by phone from New York. “That means less flows, less U.S. dollars that need to be converted into Canadian dollars, so that’s reduced the demand for the Canadian dollar.”

The loonie reached its weakest level of the day after Statistics Canada reported that the value of municipal building permits fell 10.3 percent, more than three times economists’ median forecast in a Bloomberg survey, to C$6.65 billion in June. The figure, which was the lowest since March, followed a revised 5.8 percent gain in May.

“The government and the BOC still have a lot of heavy lifting to do in getting the housing market in line with underlying fundamentals,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a client report.

Canada’s Ivey purchasing managers’ index unexpectedly decreased. The gauge was 48.4 in July on a seasonally adjusted basis, following a June reading of 55.3, according to a statement on the website of Western University’s business school. A Bloomberg survey predicted 57. Readings of more than 50 indicate purchasing by governments and companies advanced.

To contact the reporter on this story: Jeff Marshall in New York at jmarshall75@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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