Canada Dollar Rises From Week Low on Delayed Taper Expectations
The Canadian dollar rallied from its lowest point in a week as the U.S. market for new homes capped its weakest two-month period this year, bolstering the case for the Federal Reserve to maintain monetary stimulus.
The currency strengthened after $1.1 billion of options contracts for the right to buy U.S. dollars and sell Canadian expired. Fed policy makers last week refrained from reducing the $85 billion pace of monthly bond buying, saying the tightening of financial conditions, if sustained, could slow the pace of improvement in the economy. The bond-buying is thought to weaken the U.S. currency.
“The CAD move is bigger than the broader dollar move or the rates move, and that was probably something on the expiry there,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal. The new-home-sales data “probably takes the probability of Fed tapering in October from 20 percent to 19 percent right there.”
The currency was little changed at C$1.0299 per U.S. dollar at 12:44 p.m. in Toronto after touching C$1.0319, weakest since Sept. 17. One loonie buys 97.10 U.S. cents.
Canada’s benchmark 10-year government bond rose, with yields falling to 2.57 percent, the lowest point in almost a month. The 1.5 percent security maturing in June 2023 gained 25 cents to C$90.92.
Futures on crude oil, Canada’s largest export, fell 0.3 percent to $102.81 per barrel after rising as much as 0.8 percent. The Standard & Poor’s 500 Index of U.S. stocks was little changed.
The U.S. data highlight the risk that the run-up in borrowing costs pose for the housing rebound, which has boosted growth the past two years.
New-home sales increased 7.9 percent to a 421,000 annualized pace following a 390,000 rate in the prior month that was less than previously estimated, figures from the Commerce Department showed. Demand slumped 14.1 percent in July. The median forecast of 77 economists surveyed by Bloomberg News called for 420,000.
The U.S. Senate is poised to vote today on advancing a stopgap spending measure with the support of both Democratic and Republican lawmakers to avoid a shutdown following a 21-hour floor speech by Senator Ted Cruz, R-Texas, in opposition to President Barack Obama’s health-care law. Republicans who control the House of Representatives have promised to craft a longer-term funding bill that will undo parts of the law. Obama has sworn to veto any such legislation.
“The news out of the U.S. political situation is again ramping up and causing some nervousness, and I don’t think people necessarily know how to assess all that’s going on in the United States,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc. “That’s keeping markets pretty close to home. No one really wants to get caught off guard.”
The loonie has gained 0.1 percent this month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has climbed 2.2 percent while the New Zealand dollar has had the biggest increase at 4.4 percent. The U.S. dollar has dropped 2 percent.
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