Canadian Dollar Drops to 7-Week Low on Bank of Canada, Oil Drop

The Canadian dollar fell to a seven-week low against its U.S. counterpart with the Bank of Canada embracing a more accommodative monetary policy and crude oil prices heading for the biggest weekly decline since June.

The currency weakened for a third day after the central bank said on Oct. 23 its economic growth forecast for this year was cut to 1.6 percent from 1.8 percent. Crude oil, the nation’s largest export, touched the lowest level since June yesterday.

“Markets are trading with a mild risk-off bias and that may be translating into a little bit of caution on the commodity currencies,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said by phone.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.2 percent to C$1.0445 per U.S. dollar at 9:56 a.m. in Toronto, touching the weakest since Sept. 6. One loonie buys 95.74 U.S. cents.

TD predicts the Canadian dollar will end the year at C$1.06 and will weaken to C$1.10 by late 2014, Osborne said.

Bond Trade

Canada’s benchmark 10-year government bond yields were little changed at 2.42 percent. The 1.5 percent security maturing in June 2023 added two cents to C$92.16.

Futures on crude oil rose 0.4 percent to $97.53 per barrel in New York, paring the 3.2 percent weekly loss. The discount Canada’s benchmark crude oil-grade, Western Canada Select, faced to West Texas Intermediate, its U.S. peer, was at $33 per barrel, almost the biggest gap in three weeks.

The Bank of Canada’s policy statement this week dropped language about the need for future interest rate increases, repeated at every previous meeting since April 2012.

The change prompted TD Bank to push back its forecast for the next rate rise to sometime in 2015 from two interest rate increases in 2014, while Royal Bank of Canada, the nation’s largest lender, updated its prediction to 2015, from the third quarter of 2014. The median estimate of 15 economists in a Bloomberg News survey conducted Oct. 23-24 targets a first quarter 2015 rate rise, a delay of three months from the previous consensus view in an Oct. 4-9 survey.

“The environment leaves the Canadian dollar exposed,” Sue Trinh, a senior currency strategist at RBC in Hong Kong, said in a research report. “Oil market dynamics remain unsupportive and the risks for the currency on this front are skewed to the downside.”

The Canadian dollar has fallen 4.1 percent this year against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar is down 7 percent, and the U.S. dollar has added 1.6 percent.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

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

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