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Canadian Currency Reaches 10-Week Low Amid Bets Gains Too Strong

Canada’s dollar touched the weakest level since September amid wagers it rose too much, too fast yesterday after Federal Reserve Chairman-nominee Janet Yellen said more U.S. economic growth is needed before stimulus is cut.

The currency pared losses after commodities rose and crude oil, Canada’s biggest export, erased a drop. The loonie, as the Canadian dollar is called, gained yesterday after Yellen’s prepared testimony for a Senate hearing voiced support for maintaining Fed bond purchases that have fueled global risk appetite. She testified today.

“There’s sort of a feeling of inevitability that the Canadian dollar is going to trade lower,” said Mark Frey, chief market strategist at Cambridge Mercantile Group, a global foreign exchange and payments company, said by phone from Victoria, British Columbia. “Yesterday, when we traced down to the C$1.0440 mark, yeah, we got lots of corporate buyers of U.S. dollars in because, we thought, this is a short-term reprieve.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.1 percent to C$1.0464 per U.S. dollar at 5 p.m. in Toronto. It sank as much as 0.7 percent, the most since Oct. 23, to C$1.0526, the weakest level since Sept. 4, after gaining 0.4 percent yesterday. Earlier it touched C$1.0440. One loonie buys 95.57 U.S. cents.

‘Challenging Outlook’

The Canadian dollar has declined 2 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Aussie dollar has tumbled 8 percent, while the greenback has gained 4 percent.

“The underlying trend in dollar-Canada is still higher; I think people want to get long U.S. dollars and sell the Canadian dollar,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto. Long positions are bets that a currency, here the greenback, will strengthen. “Fundamentally, it’s still a challenging outlook for the Canadian economy: low inflation, slow growth.”

Canada’s benchmark 10-year government bond rose for a second day, pushing the yield down three basis points, or 0.03 percentage point, to 2.55 percent. The price of the 1.5 percent security due in June 2023 added 21 cents to C$91.16.

Yellen, currently vice chairman of the Fed, told the Senate Banking Committee she’s committed to promoting a strong recovery of an economy that’s operating well below potential.

‘Fragile’ Recovery

“It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero,” Yellen said at the hearing.

The Fed buys $85 billion a month in bonds to cap borrowing costs and spur economic growth, a strategy that tends to debase the greenback while bolstering appetite for higher-yielding assets. Policy makers have held the benchmark interest rate at virtually zero since 2008.

Stronger-than-forecast growth in October payrolls and third-quarter gross domestic product added to speculation that a slowing in the pace of the purchases may begin soon.

“When the Yellen speech was released, everyone was looking for a dovish approach, and that’s what came out in the end, and it was a kind of buy-the-rumor, sell-the-fact reaction,” said Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce, by telephone from Toronto. “The market’s mind is that they want a stronger U.S. dollar, and they want to achieve it.”

Crude Oil

Crude oil for December delivery was little changed at $93.93 a barrel in New York after dropping 1.5 percent earlier to $92.51, the lowest level since June 4. Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials increased 0.5 percent.

The loonie remained weaker after data showed Canada’s new-home price index was at zero in September following a 0.1 percent gain in August. It was the first time the index failed to rise since March 2011.

The nation’s merchandise trade deficit narrowed to C$435 million ($414 million) after a revised shortfall of C$1.09 billion in August, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast a C$1 billion deficit, based on the median of 19 forecasts.

The Canadian economy will grow 1.6 percent this year and 2.3 percent in 2014, according to the Bank of Canada’s projections in its October Monetary Policy report.

The consumer price index will remain below-target until the end of 2015, two quarters longer than forecast in July, the central bank predicted. Consumer-price inflation has remained near the bottom of the central bank’s 1 percent to 3 percent target band for the past 17 months.

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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