Canadian Dollar in Narrowest Range Since March on U.S. Standoff

The Canadian dollar traded in the narrowest weekly range since March on concern a political impasse on the budget in the U.S. will slow economic growth in the nation’s largest trading partner.

The currency weakened earlier on speculation the surge in exports the Bank of Canada has predicted will be hurt if U.S. government shuts down. The discount for crude oil sold by Canadian companies compared with market benchmarks reached its largest since January.

“For the Canadian economy, this potential shock to U.S. growth would not be welcome and therefore it is something which should be reflected in the Canadian dollar,” said Jane Foley, senior currency strategist at Rabobank International, by phone from London. “It certainly is a negative factor, that combined with oil prices.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0306 at 5 p.m. in Toronto. The currency has traded in a range of 0.34 Canadian cents this week, the least since the five days ended March 29. One loonie buys 97.03 U.S. cents.

Futures traders decreased their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain, known as net shorts, was 5,675 on Sept. 24, compared with net shorts of 18,764 a week earlier.

Dollar Bears

Lack of pipeline infrastructure connecting to international markets has meant Canada’s oil has faced a discount compared with the U.S. benchmark. The discount Canada’s benchmark crude oil-grade, Western Canada Select, faced to West Texas Intermediate, its U.S. peer, was at $31.75 per barrel, the most since Jan. 30.

Canada’s 10-year government bond rose, with yields falling three basis points, or 0.03 percentage point, to 2.56 percent. The 1.5 percent security maturing in June 2023 rose 28 cents to C$91.03.

Options traders became the most bearish on the Canadian dollar versus its U.S. peer in three weeks. The three-month so-called 25 delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian peer versus contracts to sell, touched 1.36 percent, the highest on a closing basis since Sept. 5.

Efforts to pass legislation that would keep the U.S. government funded past Sept. 30 are deadlocked with Republicans insisting any new budget remove funding for President Barack Obama’s signature health care law and Democrats seeking to preserve it.

U.S. Debate

The situation was further complicated yesterday when Republicans voiced opposition to a plan by their party leadership to pass a bill that will keep the government running and shift the fight to defund health care to an upcoming debate over raising the nation’s debt limit.

“Bad for U.S. will probably pan out to be bad for Canada, in which case you might see the U.S. dollar rise against the Canadian dollar,” said John Curran, a senior vice president at CanadianForex Ltd., an online foreign exchange dealer, by phone from Toronto. “For the Bank of Canada unfortunately they’re going to remain tied at the hip to the Federal Reserve.”

A government shutdown may reduce fourth-quarter economic growth by as much as 1.4 percentage points in the U.S., Canada’s largest trading partner, according to Moody’s Analytics Inc.

The Canadian dollar has lost 0.2 percent this month against nine developed market peers tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has fallen 2 percent while the Australian currency has gained 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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