Canada Dollar Touches Lowest in Three Years on Rate Outlook

The Canadian dollar touched the lowest level in more than three years versus its U.S. counterpart on speculation the chances of a cut in the Bank of Canada’s benchmark lending rate are rising.

The currency fell against the majority of its most-traded peers before a central-bank meeting tomorrow, when policy makers are projected to leave the benchmark interest rate unchanged. A report last week showed third-quarter economic growth was the fastest in two years even as exports fell, frustrating the Bank of Canada’s expectations for trade to drive growth. U.S. Federal Reserve officials may consider trimming monthly bond purchases at their Dec. 17-18 gathering.

“The divergent view in monetary policies in Ottawa compared to Washington will keep the loonie weak,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “Whether there’ll be a rate cut tomorrow, the upside bias for dollar-Canada remains unchanged.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, fell 0.1 percent to C$1.0649 per U.S. dollar at 5 p.m. in Toronto. Earlier it dropped to C$1.0673 per U.S. dollar, the least since August 2010. One loonie buys 93.91 U.S. cents.

March 2014 bankers’ acceptances contracts yielded 1.26 percent, matching the lowest since May. The decline in yield suggests investors are pushing back forecasts for higher rates, and may be starting to price in reductions.

Bonds Rise

The nation’s benchmark 10-year government bonds rose, pushing yields down two basis points, or 0.02 percentage point, to 2.58 percent. The price of the 1.5 percent securities maturing in June 2023 increased 16 cents to C$90.93.

The loonie’s 14-day relative strength index against the greenback fell to 27.3 today, below the 30 threshold which indicates the currency’s decline may be losing momentum. It also traded below the lower band of its 30-day Bollinger bands, another technical indicator that signals prices may have fallen too far, too fast.

Greenback-loonie was the third-most actively traded currency pair in over-the-counter options, amounting to $6.2 billion, or 9.2 percent of the $68 billion daily total, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Trading in the pair was 77 percent more than the average for the past five Tuesdays at a similar time in the day.

Rate ‘Bias’

Economists surveyed by Bloomberg unanimously forecast the Bank of Canada will leave its policy rate at 1 percent, as policy makers weigh slow inflation and a sluggish economic recovery against the risk of encouraging a build-up of record household debt levels. The announcement is at 10 a.m. tomorrow in Ottawa.

“There’s still a bias, there’s a possibility somewhere down the road that the Bank of Canada possibly has another interest-rate cut,” said David Bradley, director of foreign exchange trading at Scotia Capital Inc., a unit of Bank of Nova Scotia, by phone from Toronto. “With the announcement tomorrow, that’s just kind of weighing on the Canadian dollar.”

Fed officials have said they may reduce the central bank’s $85 billion in monthly bond purchases “in coming months” as the economy improves, according to minutes of their October meeting released last month.

The Canadian dollar has lost 3.1 percent in the past three months against nine developed-market peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar dropped 1.5 percent.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; 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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