Canadian Dollar’s January Loss Biggest in 42 Years Amid Turmoil

Canada’s dollar had its worst start to a year since at least 1972 amid speculation the central bank may favor cutting interest rates and as a selloff in emerging markets sent investors to the haven of the U.S. dollar.

The currency weakened past C$1.12 to the greenback for the first time since July 2009 as data showing a fifth month of economic growth failed to stem speculation the Bank of Canada will ease monetary policy. The loonie, as the currency is called, has lost 1.5 percent since the central bank reduced its inflation forecast last week and cited the currency’s strength as a headwind to non-commodity exports.

“We’ve been banging against the 1.12 level so often that market dynamics finally took us through,” Steven Englander, global head of foreign exchange at Citigroup Inc., said by phone from New York. The Bank of Canada “will continue to stress that in the world we’re in, a weaker Canadian dollar is part of the solution, not part of the problem.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, depreciated as much as 0.6 percent to C$1.1224 per U.S. dollar before trading at C$1.1128 at 5 p.m. in Toronto. One Canadian dollar buys 89.86 U.S. cents.

The currency lost 4.5 percent this month, the most in a January in records compiled by Bloomberg dating back 42 years.

The loonie appreciated today after breaching C$1.12 as money managers rebalanced their funds at the end of the month, according to Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal.

‘Right-Size’

“Asset managers need to reduce their short-CAD hedges because the value of their underlier has increased,” he said in an e-mail. “So global asset managers end up buying CAD on month-end to right-size the hedges. I would attribute today’s move to that.”

Futures traders decreased their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain, known as net shorts, was 62,789 contracts on Jan. 28, compared with net shorts of 70,327 a week earlier.

Canada’s dollar will resume its decline and reach C$1.20 to the U.S. dollar, Citigroup’s Englander said. The central bank recognizes that falling commodity prices mean Canada’s growth depends on non-commodity exports, which need a currency at that level to convince auto, cereal and pharmaceutical manufacturers may move plants to Canada, he said.

Bonds Gain

The nation’s government bonds rose, pushing yields on the benchmark 10-year security down four basis points, or 0.04 percentage point, to 2.34 percent. The price of the 1.5 percent security maturing in Jane 2023 rose 30 cents to C$93.04.

The U.S. and Japanese currencies climbed against all major peers this month amid a slide in emerging markets as data signaled China’s economy is slowing and anti-government protests in Ukraine and Thailand and a corruption investigation in Turkey undermined investors’ confidence in political stability there.

The yen gained 5.5 percent and the greenback rose 1.9 percent in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The loonie was the biggest loser, falling 3.3 percent. The Norwegian krone dropped 1.9 percent and the Australian dollar declined 0.1 percent.

Economic Growth

Canada’s gross domestic product expanded 0.2 percent in November from a month earlier to an annualized C$1.61 trillion ($1.44 trillion), the nation’s statistics agency said today in Ottawa. The rate, which matched the forecast in a Bloomberg survey, was the slowest since August.

Oil and gas production rebounded even as manufacturing slowed 0.5 percent, the first monthly decline in three, Statistics Canada said.

“Looking into the details of the November Canadian GDP, the energy sector helped likely in part due to cold weather, while sectors linked to domestic consumption were doing decently,” Sebastien Galy, senior foreign-exchange strategist at Societe Generale SA, wrote in an e-mail. “What was starting to crack were sectors exposed to international competition.”

The Bank of Canada has held its benchmark interest rate at 1 percent since 2010. Governor Stephen Poloz in October dropped language from a policy statement that higher interest rates would become appropriate.

The U.S. economy expanded 3.2 percent in the fourth quarter, compared with 0.1 percent growth a year earlier, data showed yesterday. That supported the Federal Reserve’s decisions at its last two meetings to pare the bond purchases it makes by $20 billion, to $65 billion per month. The stimulus, which has spurred risk appetite worldwide, tends to devalue the U.S. currency.

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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