Canada’s currency sank to the lowest in more than two weeks against its U.S. counterpart as concern European borrowing costs were reaching unsustainable levels sapped demand for riskier assets.
The nation’s dollar fell as global stock and commodity prices weakened. Higher-yielding assets declined after Italian borrowing costs increased to the highest since 1997 at a debt auction and Spanish banks’ borrowings from the European Central Bank climbed by the most in a year.
“Commodities are taking it on the chin,” said Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets, by phone from Toronto. “Most of the fallout in Canada has been from that. It’s been a tough few days for gold, in particular. Crude got above $100 recently and is now back below $95.”
The loonie, as the currency is known, traded 0.5 percent lower at C$1.0397 by 5 p.m. Toronto time after reaching $1.0424, the weakest since Nov. 28 when it touched C$1.0474. One Canadian dollar buys 96.18 U.S. cents.
Futures on crude oil, Canada’s biggest export, tumbled 5.3 percent to $94.87 a barrel in New York trading. Gold futures for February delivery fell 3.5 percent to settle at $1,574.05 on the Comex in New York, the lowest closing level since July 12.
“It feels like we are starting to get into an area where Canada is going to find some support,” said Enright at CIBC. “But you are going to need to see commodities prices find a floor before we reject these kinds of levels a little more emphatically.”
The Standard & Poor’s 500 Index declined 1.1 percent and the MSCI World Index of stocks retreated 1.8 percent. Canada’s benchmark Standard & Poor’s/TSX Composite Index declined 1.8 percent.
Yields on Government of Canada bonds reached record lows. The yield on 10-year bonds declined two basis points, or 0.02 percentage point, to 1.95 percent after touching 1.94 percent, the lowest level in Bloomberg data beginning in 1989. The price of the 3.25 percent securities maturing in June 2021 rose 16 cents to C$111.16.
Canada sold C$3 billion ($2.9 billion) of bonds due in February 2015 at an average yield of 1.023 percent and a bid-to-cover ratio of 2.53 today, according to a statement on the Ottawa-based institution’s website. The ratio measures demand by calculating how much was bid versus how much was sold. The previous three-year auction in November drew an average yield of 1.219 percent, a ratio of 2.36 times the bids for the amount for sale.
Canadian factory sales fell in October for the first time in four months on fewer shipments by oil refiners and food manufacturers, while new orders declined. Sales dropped 0.8 percent on a seasonally adjusted basis to C$48.7 billion, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted a 0.6 percent decline based on the median of 18 responses.
“The decrease in shipment volumes isn’t bullish for GDP in October,” Krishen Rangasamy, senior economist at National Bank of Canada in Montreal, said in a note to clients. “The expected softening of the Canadian economy in the final quarter of the year seems to be materializing.”
The loonie has weakened 2.4 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has gained 2.4 percent, while the yen has gained 5.2 percent.