Canadian Dollar Touches Week Low as U.S. Economy Shows Growth

Canada’s dollar dropped to a more than one-week low after reports signaled a pickup in U.S. growth and the price of oil, the nation’s biggest export, traded at almost the weakest level since July.

The Canadian dollar was little changed against its U.S. peer as American lawmakers remained deadlocked over the federal budget in a confrontation that risks a government shutdown on Oct. 1. The discount for crude oil sold by Canadian companies over the U.S. benchmark rose to its largest since February.

“The Canadian dollar continues to be driven by factors outside its border,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The U.S. dollar is rebounding after a few sessions after this fiasco in Washington, and that’s weighing on all other currencies.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, traded at C$1.0310 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0341, the weakest level since Sept. 16. One loonie buys 96.99 U.S. cents.

Canada’s dollar has gained 2 percent this quarter, trimming its yearly decline to 3.8 percent.

Government bonds fell, with the yield on benchmark 10-year debt up two basis points, or 0.02 percentage point, to 2.59 percent as the price of the 1.5 percent securities due in June 2023 dropped 13 cents to C$90.75.

Oil Discount

The discount Canada’s benchmark crude oil-grade, Western Canada Select, faced to West Texas Intermediate, its U.S. peer, was at $31 per barrel, the most since Feb. 4.

Futures on WTI rose for the first time in six days, gaining 0.2 percent to $102.87 per barrel in New York after falling to $102.20, lowest since July 8. The Standard & Poor’s 500 Index of U.S. stocks added 0.4 percent.

Jobless claims in the U.S., Canada’s biggest trade partner, decreased by 5,000 to 305,000 in the week ended Sept. 21, a Labor Department report showed. The median forecast of 49 economists surveyed by Bloomberg called for an increase in jobs to 325,000.

U.S. gross domestic product rose at a 2.5 percent annualized rate, unrevised from the previous estimate, after expanding 1.1 percent in the first quarter, Commerce Department figures showed. The median forecast of economists surveyed by Bloomberg was a 2.6 percent pace.

Canada’s economy grew at a 1.7 percent annualized pace in the second quarter, Statistics Canada reported Aug. 30, and is forecast to rise 0.5 percent in July after dropping that much the prior month.

Buying Greenbacks

The clash in Washington and the Federal Reserve’s decision to prolong stimulus that initially pushed down the U.S. dollar is “giving people opportunities to buy U.S. dollars more cheaply,” Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “People are happy it’s happening.”

The U.S. Congress has yet to pass a U.S. budget as Republicans and Democrats tussle over whether to stop funding the 2010 health-care overhaul known as Obamacare, threatening a a government shutdown by Oct. 1.

“Once the U.S. fiscal concerns dissipate,” the relationship between the U.S. and Canadian dollars “will realign relatively quickly,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., wrote in a note to clients. “We currently hold a short Canadian dollar basket in our portfolio and continue to believe the Canadian dollar will weaken in the medium term.” A short position is a bet an asset will decline in value.

Weakest Forecast

Nomura said it will revise its forecast for the Canadian dollar next week. It currently projects the loonie to end the year at C$1.10, the weakest among 61 economists surveyed by Bloomberg News, and shared only by Denmark’s Saxo Bank A/S. The median forecast is C$1.05.

Canada’s dollar rose to a three-month high on Sept. 18 after the Fed’s surprise decision to refrain from reducing the $85 billion of monthly bond purchases it uses to cap borrowing costs. Twenty-four of 41 economists surveyed by Bloomberg on Sept. 18-19 said the Fed won’t take the first step in slowing its bond purchases until December.

The loonie is little changed over the past month against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar has climbed 2 percent while the New Zealand dollar has had the biggest increase at 4 percent. The U.S. dollar has dropped 2 percent.

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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