The Canadian dollar fell from its highest level in a week as rifts emerged between U.S. politicians seeking to end a government shutdown and stave off potential default in Canada’s biggest trading partner.
The currency weakened against the majority of its most-traded peers as leaders in the U.S. Senate put on hold bipartisan talks to end the fiscal impasse and Democrats rejected an alternative plan proposed by Republicans in the House of Representatives. Fitch Ratings Ltd. placed the U.S.’s AAA credit rating on negative watch, citing failure to raise the $16.7 trillion debt ceiling in a timely manner.
“It seems like there was a lot of opposition to the deal in the House of Representatives particularly from the hardliners on the right,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “It seems like there’s been more concessions from the Republican side so the issue now is ’is it enough to pass the House of Representatives?’”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.3 percent to C$1.0383 per U.S. dollar at 5:06 p.m. in Toronto, after earlier touching C$1.0332, the strongest since Oct. 8. One loonie buys 96.31 U.S. cents.
Canada’s 10-year benchmark government bond fell, with yields rising five basis points or 0.05 percentage point, to 2.65 percent, the highest on a closing basis since Sept. 20. The 1.5 percent security maturing in June 2023 lost 43 cents to C$90.33.
The Bank of Canada will auction C$3.3 billion ($3.2 billion) of two-year debt tomorrow.
Futures for crude oil, Canada’s largest export, fell 1.4 percent to $100.94 per barrel in New York and the Standard & Poor’s 500 Index of U.S. stocks fell 0.7 percent.
A report this week is forecast to show consumer price increases, excluding volatile energy and food prices, picked up pace in September to 0.3 percent from 0.2 percent the previous month, a sign Canada’s economy is growing, according to the median estimate of a Bloomberg survey.
Home prices were unchanged in September from the previous month, according to data today from the Teranet-National Bank Home Price Index.
“We have weak existing home sales that are less strong than they were the previous month and similar on some of the pricing,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), by phone from Toronto. “So not the most positive prints overall.”
The Canadian dollar reached its lowest point in four and a half months against the currency of its commodity exporting peer Australia, as improving data out of China, that nation’s largest trading partner, contrasted with continued fiscal uncertainty in the U.S.
The loonie fell 0.7 percent to 98.92 Canadian cents per Australian dollar, the lowest since June 5, as the Reserve Bank of Australia said recent interest-rate cuts are having an effect in bolstering the economy and adopted what investors interpreted as a neutral bias towards further rate actions.
“The RBA minutes were a little bit more neutral than what the market was expecting,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank, by phone from Toronto. “The market is still a little bit dovish on the RBA and those expectations have been dashed.”
The U.S. government will be unable to borrow after Oct. 17, and both the House and Senate plans propose extending that deadline to Feb. 7, 2014 and funding the government through Jan. 15. A House vote as soon as tonight will test whether Republicans are willing to raise borrowing authority and end the shutdown without their initial demand for major changes to the 2010 health-care law.
“Canada really depends on a robust U.S. recovery,” said Don Mikolich, executive director of foreign-exchange sales at Canadian Imperial Bank of Commerce. “Once things are kind of sealed and back on track, then I think Canada could trade a little bit stronger.”
The loonie has fallen 2.2 percent this year against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has weakened 6.7 percent and the U.S. dollar has gained 2.8 percent.
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