Canadian Currency Weakens as Crude Oil Falls

The Canadian dollar traded at almost the weakest level in two months amid a slide in crude oil, the nation’s biggest export, and as the discount that western Canadian oil faces headed toward the widest on record.

The currency fell for a second day as traders awaited economic reports this week after data on Oct. 31 showed gross domestic product grew in August more than forecast, while the Bank of Canada a week earlier cut its economic forecasts. The discount applied to the heavy crude of Canadian producers versus lighter U.S. benchmarks increased to the most since December.

“That’s a large enough move in my mind that it would start to have some implications,” Alan Ruskin, Deutsche Bank’s global head of Group-of-10 foreign exchange, said by phone from New York of the oil figures. “When you have large enough movements, it starts to get flagged as a potential, dare I say, souring effect on Canadian-dollar sentiment.”

The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.3 percent to C$1.0456 per U.S. dollar at 5 p.m. in Toronto and reached C$1.0462. It touched C$1.0497 on Oct. 30, an eight-week low. One Canadian dollar purchases 95.64 U.S. cents.

Canada’s currency rose 1 percent over the past week against nine developed-market currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar gained 0.7 percent.

Benchmark Bond

The nation’s benchmark 10-year government bond fell, pushing yields to a two-week high. Yields increased as much as six basis points, or 0.06 percentage point, to 2.55 percent, the highest since Oct. 21, before trading at 2.53 percent, up four basis points. The price of the 1.5 percent security maturing in June 2023 lost 32 cents to C$91.29.

The Bank of Canada will auction C$3.4 billion ($3.3 billion) tomorrow of notes maturing in March 2019.

The loonie weakened as traders awaited data this week on employment and construction. Statistics Canada will report tomorrow that building permits rose 6 percent in September, after a 21 percent drop the prior month, economists in a Bloomberg survey forecast. The statistics agency will issue data on Nov. 8 showing employment increased by 11,000 jobs in October, versus a gain of 11,900 in September and a jump of 59,200 in August, another Bloomberg survey estimated.

Canadian GDP grew 0.3 percent in August, Statistics Canada reported Oct. 31, compared with a forecast of 0.1 percent in a Bloomberg survey. The Bank of Canada said Oct. 23 slack in the economy will persist until about the end of 2015.

‘GDP Surprise’

“Last week’s monthly GDP surprise caught everyone by surprise, and I think it’s made this market second-guess the valuation of the loonie and that perhaps it might have been sold too aggressively,” said Brad Schruder, director of foreign exchange at Bank of Montreal, by phone from Toronto. “If that data comes in positive, the hypothesis based on what the Bank of Canada told us comes into question.”

The Canadian dollar remained weaker as a gauge of service industries in the U.S., the nation’s biggest trade partner, rose in October more than forecast. The gain added to the case for the Federal Reserve to slow stimulus.

The Institute for Supply Management’s U.S. non-manufacturing index increased to 55.4 from the prior month’s 54.4, the Tempe, Arizona-based group said. A reading above 50 shows expansion. A Bloomberg survey of economists forecast 54.

Government reports in the U.S. this week will show third-quarter GDP growth slowed to 2 percent, from 2.5 percent from April through June, and employers added 120,000 jobs in October, from 148,000 the previous month, Bloomberg surveys forecast.

Crude oil for December delivery sank 1 percent to $93.64 a barrel in New York and touched $93.07, the lowest intraday level since June 24.

Record Discount

The discount on western Canadian oil swelled to $42 per barrel, the most since it reached a record $42.50 Dec. 14. The 2013 average is $23.48.

“If oil is having a poorer session, that isn’t going to help, but the direct short-term inferences on commodity prices are somewhat less than we’ve seen historically,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by telephone from London. “In the short term, I still think we’re very much beholden to what’s going to happen in the U.S.”

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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