Canada Dollar Falls Against Peers on Wider Than Expected Deficit

The Canadian dollar fell against the majority of its most traded peers after the country’s current account deficit narrowed less than expected in the third quarter, signaling export growth remains subdued.

The currency rose against the U.S. dollar as the deficit in the July-September period narrowed to C$15.5 billion compared with forecasts it would be C$14.4 billion. The second quarter gap was revised to C$15.9 billion from an originally reported C$14.6 billion, Statistics Canada said today in Ottawa.

“Although it’s a narrowing on the quarter it’s still a big revision against the previous quarter’s numbers so the number itself was not particularly good,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto. “It’s another indication the export sector here is struggling.”

The loonie, as the Canadian dollar is known for the image of the water fowl on the C$1 coin rose 0.1 percent to C$1.0581 per U.S. dollar at 5:00 p.m. in Toronto. Yesterday it touched C$1.0603 per U.S. dollar, the lowest since July. One loonie buys 94.51 U.S. cents. The currency dropped versus 9 of 16 peers.

Futures on crude oil, Canada’s largest export, fell 0.1 percent to $92.25 a barrel, the fifth straight day of losses, after touching a six-month low yesterday.

Government bonds rose with the yield on the benchmark 10-year security falling one basis point, or 0.01 percentage point, to 2.54 percent. The 1.5 percent security maturing in June 2023 added 10 cents to C$91.33.

Implied Volatility

Implied volatility for three-month options on the U.S. dollar against its Canadian peer touched 7 percent, the highest since Sept. 5 on a intraday basis. The measure is used to set option prices and gauge the expected pace of currency swings. The 2013 average is 6.69 percent.

A report tomorrow is expected to show economic growth grew 2.4 percent in the third quarter from 1.7 percent the previous period, according to the median estimate of a Bloomberg survey of 20 economists.

ING Groep NV joined Goldman Sachs Group Inc. today calling for a decline in the Canadian dollar. The Amsterdam-based bank recommends investors bet the loonie will fall to C$1.11 per U.S. dollar.

Goldman yesterday said one of its top trades is selling the loonie against the greenback, citing export weakness. The Bank of Canada is one of the few central banks “with scope” to cut interest rates, analysts led by Thomas Stolper in London said. The Goldman analysts forecast the Canadian dollar will weaken to C$1.14 in the next twelve months.

Taxi Drivers

“I don’t see a great deal of Canadian dollar weakness in the cards like many are now reporting, like the Goldmans, like everybody else,” said John Curran, senior vice president at Canadian Forex Ltd., an online foreign-exchange dealer, said by phone from Toronto. “When taxi drivers and Goldman Sachs are calling for the same trade it’s time to get out.”

Curran said bets against the loonie are getting too common and the currency will likely strengthen to C$1.0450 “in coming weeks.”

The Canadian dollar has fallen 2.3 percent in the last three months against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has lost 1.8 percent and the Australian dollar has gained 0.4 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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