Canada Dollar Falls for Second Day Amid Renewal of Taper Bets

Canada’s dollar fell for a second day as traders started to price in a reduction in monetary stimulus after the U.S. Federal Reserve surprised markets this week by maintaining its $85 billion in monthly bond buying.

The currency extended the decline after BlackBerry Ltd., the smartphone maker that’s evaluating a sale, said it will cut 4,500 jobs and record an inventory writedown of as much as $960 million. Canada’s inflation rate slowed for the first time in four months in August, approaching the bottom of the central bank’s target band. Fed Bank of St. Louis President James Bullard said today in an interview with Bloomberg Television that a “small” tapering is possible next month.

“The Canadian dollar and all the other beneficiaries of quantitative easing remain vulnerable in the long term as tapering will occur -- the only question is when,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said in a note to clients. “Markets are still jittery, but I believe we have seen a near-term base for the U.S. dollar against most Group of Seven currencies.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.4 percent to C$1.0304 per U.S. dollar at 5 p.m. in Toronto, paring gains this week to 0.5 percent. One loonie buys 97.05 U.S. cents.

Futures on crude oil, the nation’s largest export, fell 1.6 percent to $104.67 per barrel in New York. The average price over the past year is $95.38. The Standard & Poor’s 500 Index dropped 0.7 percent.

BlackBerry Loss

BlackBerry (BB), based in Waterloo, Ontario, expects to report a net operating loss of as much as $995 million for the fiscal second quarter after a new set of devices failed to lure buyers, according to a statement today. Sales in the quarter were about $1.6 billion -- just more than half the $3.03 billion average estimate of analysts surveyed by Bloomberg.

The job cuts are “actually enough to impact the overall Canadian labor market,” Terrence Connelly, founder of Lafayette, California-based hedge-fund advisory firm Contingent Macro Advisors LLC, said in an e-mailed reply to questions. “The knock-on effects could be significant over the coming months.”

Benchmark 10-year bonds extended gains after the BlackBerry announcement, with yields falling two basis points, or 0.02 percentage point, to 2.69 percent.

The interest-rate gap between Canadian and U.S. two-year government debt narrowed to 90 basis points after widening to 92 yesterday, the most since January. Two-year Canadian bond yields dropped two basis points to 1.22 percent. U.S. two-year debt yielded 0.33 percent.

Inflation Rate

Canada’s inflation rate slowed in August as the consumer price index rose 1.1 percent from a year earlier, following July’s 1.3 percent pace, Statistics Canada said from Ottawa. The core rate, which excludes eight volatile products, slowed to 1.3 percent from 1.4 percent.

Bank of Canada Governor Stephen Poloz, who sets policy to keep price gains in the middle of a 1 percent to 3 percent range, has said inflation will remain below 2 percent until mid-2015. The central bank’s key lending rate has been 1 percent for three years, the longest pause since the 1950s, and economists surveyed by Bloomberg predict Poloz won’t raise borrowing costs until the second half of 2014.

Taper Expectations

The loonie jumped to a three-month high on Sept. 18 after the Fed refrained from a reduction in asset buying, with Chairman Ben S. Bernanke saying the central bank would make the taper call based on “what’s needed for the economy.” Economists had expected the Fed to trim monthly bond buying by $5 billion. Policy makers have pledged for more than a year to press on with the strategy until achieving substantial labor market gains.

“Expectations still remain that the Fed will taper quantitative easing, just at a later date,” Blake Jespersen, managing director of foreign exchange at Bank of Montreal, said by phone from Toronto.

The loonie, has fallen 1.7 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar has added 2.5 percent. The yen is the biggest decliner, down 12 percent, while the euro climbed 5.4 percent to lead gainers.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.net

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

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