Canada’s dollar headed for the biggest monthly loss since September against its U.S. counterpart as speculation Europe’s debt crisis will worsen damped appetite for risk.
The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, fluctuated today after confidence among consumers in the U.S., Canada’s biggest trade partner, unexpectedly declined in May to the lowest in four months. Commodities fell.
“Commodity-centric currencies like the Canadian dollar will remain under pressure unless you have some sort of sign that Europe is getting its act together and growth will have a chance to stabilize,” said Adrian Miller, director of global markets strategy at GMP Securities LLC in New York.
The Canadian dollar appreciated 0.2 percent to C$1.0221 at 5 p.m. in Toronto, poised for a monthly loss of 3.4 percent. It gained 0.3 percent earlier to C$1.0207, the strongest level since May 23, and weakened as much as 0.3 percent. One Canadian dollar buys 97.84 U.S. cents.
The loonie gained 0.3 percent over the past week against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar strengthened 0.5 percent, and the yen climbed 1.1 percent, on refuge demand amid the European debt crisis. The euro fell 1.1 percent.
“We still prefer to be long the U.S. dollar with all the dark clouds gathering in Europe,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto, who recommended buying the U.S. currency at C$1.0180 to C$1.0200. “We’re probably not out of the woods yet with the European risk.” Long positions are bets that a currency will strengthen.
Canada’s dollar briefly erased losses after the Conference Board’s U.S. confidence index rose to 64.9 from a revised 68.7 in April, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called for a reading of 69.6.
July futures for crude oil, Canada’s biggest export, gained as much as 1.5 percent to $92.21 a barrel in New York and lost 0.7 percent before trading little changed at $90.87. They touched $89.28 on May 23, the lowest level in more than six months. The Thomson Reuters/Jefferies CRB Index of raw materials declined 0.8 percent. Raw materials including oil account for about half of Canada’s export revenue.
Bet Against Loonie
Investors should bet Canada’s dollar will slide to its weakest level since October as commodities drop below 3 1/2 year support levels, according to Bank of America Corp.
The CRB Index fell below 295 on May 8, a 42-month trend line, and reached 279.5 today, the lowest level since September 2010. It may decline to 265 and 257, according to MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Merrill Lynch in New York. Brent crude oil also has dropped below its 3 1/2 year support level, and copper is approaching support, Curry wrote today in a client note. Support is an area on a chart where buy orders may be clustered.
Curry’s firm entered a Canadian-dollar bet at C$1.0053 per U.S. dollar on May 15, with a target of it weakening to C$1.0528, he wrote. It last closed weaker than that on Oct. 3. The firm will exit the trade if the Canadian currency strengthens to 99.50 cents.
Canadian government bonds fell, erasing early gains. Two-year note yields increased eight basis points, or 0.08 percentage point, to 1.16 percent, and 10-year yields rose three basis points to 1.87 percent.
Lowest Since 1989
Thirty-year bond yields increased two basis points to 2.39 percent. They touched 2.343 percent on May 25, the lowest level in data compiled by Bloomberg going back to 1989. Canadian government bonds dated 25 years or longer have returned 4.4 percent this month, compared with 0.9 percent for the global sovereign-bond market, according to Bank of America Merrill Lynch data.
The threat of a spreading European debt crisis and falling commodity prices are driving investors to the safety of Canada’s longer-term bonds and may prolong the rally in 30-year bonds.
The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped to a five-month low on May 23 on signs China’s economic boom is stalling as lenders struggle to meet loan targets. A decline in China, the world’s biggest consumer of industrial metals, would sap demand for Canadian exports.
“Given some of the hurdles that lie ahead for financial markets in the next few weeks, I don’t think it’s obvious that we’ve hit bottom in yields,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. “There’s so much event risk, especially around Greece.”
A political impasse in Greece, where voters rejected austerity measures May 6, has fueled bets the country may leave the euro, and concern about Spain’s ability to recapitalize troubled banks is adding to speculation on the currency union’s future. A deepening crisis in Europe risks damaging the world economy, the Organization for Economic Cooperation and Development said in a report May 22.