Canada’s dollar weakened the most in a month against its U.S. counterpart after European officials demanded Greece enact greater austerity measures before winning more funding, damping demand for riskier assets.
The currency dropped below parity with the U.S. dollar even after Statistics Canada data showed the nation recorded a trade surplus of C$2.7 billion ($2.7 billion) in December, the widest since October 2008. The currency had its first weekly loss since Jan. 6 as stocks and crude oil, Canada’s biggest export, fell.
“The overriding situation in the euro zone is weighing on sentiment,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The markets have been overly optimistic.”
The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.7 percent to C$1.0014 per U.S. dollar at 5 p.m. Toronto time. It weakened as much as 0.9 percent, the biggest intraday drop since Jan. 5, and declined 0.8 percent for the week. The loonie touched 99.26 cents yesterday, the strongest level since Oct. 31. One Canadian dollar buys 99.86 U.S. cents.
Implied volatility for one-month options on the Canadian dollar versus the greenback touched a 10-month low before paring its decline as the loonie weakened. It reached 7.66 percent, the lowest level since April 11, before rising to 8.08 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. It has averaged 10 percent over the past year.
Canada’s government bonds rose for the first time in four days. Yields on the benchmark 10-year note fell four basis points, or 0.04 percentage point, to 2.05 percent after climbing yesterday to a two-month high of 2.13 percent. The price of the 3.25 percent security due in June 2021 increased 33 cents to C$110.10.
Five-year note yields tumbled four basis points to 1.41 percent, after touching 1.48 percent yesterday, the highest since Dec. 1. The government will auction C$3.5 billion ($3.5 billion) of five-year debt on Feb. 15.
Commodities dropped as risk appetite shrank. Crude oil for March delivery fell as much as 2.5 percent to $97.32 a barrel in New York, its biggest intraday drop since Dec. 14, before trading at $99.05, down 0.8 percent. The Thomson Reuters/Jefferies CRB Index of raw materials decreased 1.1 percent. Raw materials including oil account for about half of Canada’s export revenue. The Standard & Poor’s 500 index declined 0.7 percent.
“The news out of Europe has taken a little wind out of the risk sails,” said Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal.
The loonie remained lower as the nation’s trade surplus, which was more than double the revised amount in November, beat all 19 forecasts in a Bloomberg economist survey with a median projection for a surplus of C$800 million.
Investor reaction was “muted” in the face of turmoil in Europe, Bank of Montreal’s Perrier said.
“We are living and dying on headlines out of Greece,” Perrier said.
Greek Prime Minister Lucas Papademos won approval from his Cabinet late today to submit laws for the austerity steps, said a government official who declined to be named. The measures spurred protests and a strike. Papademos had told his ministers they had to back deeper budget cuts or quit.
Talks on Greece yesterday between euro-area finance chiefs broke up with Luxembourg Prime Minister Jean-Claude Juncker, head of the group, saying the nation must turn austerity steps it pledged in an agreement into law before getting aid.
The loonie gained 1.4 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar fell 0.4 percent, and the euro dropped 3.7 percent.