Canadian Dollar Falls as Oil Discount Reaches Eight-Month High

Canada’s dollar touched a one-week low as the discount for crude oil sold by Canadian companies compared with market benchmarks reached its largest since February, limiting the economic boost from the country’s biggest export.

The currency fell for a second day versus its U.S. peer as politicians in Washington continued a standoff over legislation to fund the government and avoid a shutdown. Americans are losing faith in the nation’s economic recovery, according to a Bloomberg National Poll. Consumer purchases account for about 70 percent of economic activity in the U.S., Canada’s largest trading partner.

“For the Canadian economy it’s negative to see that spread widen,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), said by phone from Toronto. “There’s a lot of uncertainty right now between different proposals in Canada in terms of how to transport oil, and that’s led to some volatility in that spread. I don’t think those issues are resolved in the next couple of days.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.1 percent to C$1.0314 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0319, weakest since Sept. 17. One loonie buys 96.96 U.S. cents.

The Canadian dollar is up 2 percent this quarter, trimming its year-to-date drop to 3.8 percent.

Crude Discount

The discount Canada’s benchmark crude oil-grade, Western Canada Select, faced to West Texas Intermediate, its U.S. peer, was at $30 per barrel for a second day, the most since Feb. 4.

Futures on WTI fell 0.8 percent to $102.36 per barrel after rising as much as 0.8 percent.

Canada’s benchmark 10-year government bond rose, with yields falling three basis points, or 0.03 percentage point, to 2.57 percent, the lowest point in almost a month. The 1.5 percent security maturing in June 2023 gained 21 cents to C$90.88.

The Standard & Poor’s 500 Index of U.S. stocks fell 0.3 percent.

The U.S. Senate unanimously advanced a stopgap spending measure 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.

Market ‘Nervousness’

“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.”

Fewer Americans anticipate improvement in the economy’s strength over the next year than in the last Bloomberg National Poll in June, with 27 percent saying the expansion will be more robust, down from 39 percent. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening.

Canada’s currency rose earlier 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.

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 loonie is little changed this month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has climbed 2.1 percent while the New Zealand dollar has had the biggest increase at 3.4 percent. The U.S. dollar has dropped 2 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

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

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