Canadian Dollar Weakens Against Major Peers on Growth

Canada’s dollar dropped against the majority of its most-traded counterparts as equities declined on deepening concern growth in the economy of the U.S., the nation’s biggest trading partner, is slowing.

The Canadian currency weakened after a report showed retail sales in the U.S. declined in May for a second month. The currency extended losses after Spain’s credit rating was cut three steps by Moody’s Investors Service before Greek elections on June 17. Canada’s industrial companies are forecast to report tomorrow that their use of production capacity held steady, according to a Bloomberg survey.

“It’s been pretty much tracking equities,” Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto, said in a telephone interview. “Flows have been very light. We’ve been stuck very much in familiar territory the last couple of days. The market is watching for the Greek election.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, decreased 0.4 percent to C$1.0303 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 97.06 U.S. cents.

Yields on the nation’s two-year government securities gained one basis point, or 0.01 percentage point, to 1.03 percent. They reached 0.86 percent on June 1, the lowest this year, as investors sought refuge in top-rated sovereign debt.

The government sold C$2.9 billion ($2.8 billion) of three-year securities with a 1.153 percent yield, the central bank said on its website. The 1.5 percent securities mature in August 2015.

‘Disappointing Numbers’

The loonie erased a gain versus the U.S. dollar after the Commerce Department reported a 0.2 percent decrease in retail sales last month, following a similar decline in April that was previously reported as a gain. May’s drop matched the median forecast of 79 economists surveyed by Bloomberg News.

The currency slid earlier in the day as borrowing costs rose after Italy and Germany sold debt.

“The retail-sales numbers were disappointing,” Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said in a telephone interview. “I think a lot of people expected disappointing numbers, so from that point of view it wasn’t really a big shocker. It’s something to think about, but the market has its attention focused elsewhere.”

Appreciation Period

The Canadian dollar is in a period of appreciation after strengthening below C$1.0355 on June 6, George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at Royal Bank of Canada’s RBC Capital Markets unit, wrote in a note today.

The currency’s initial resistance level is at $1.0208, which it has tested but held over the past four trading days, according to Davis. Secondary resistance levels are at C$1.0159 and C$1.0105, the 200-day moving average, he said. Resistance refers to an area on a chart where sell orders may be clustered.

The Standard & Poor’s 500 Index dropped 0.7 percent after declining as much as 1 percent. Crude oil, Canada’s largest export, fell 1.1 percent after sliding as much as 1.4 percent and adding as much as 0.8 percent.

The 30-day correlation coefficient between the Canadian dollar and the S&P 500 rose to 0.89 today, from 0.76 at the end of May, Bloomberg data show. A coefficient of 1 means the measures move in lockstep. The correlation has averaged 0.35 over the past decade, and this year ranged between 0.87 in April and 0.58 in March.

The loonie’s correlation with crude-oil futures was 0.72.

Canada’s net international debt rose in the first quarter as a stronger currency curbed the value of foreign assets, government figures showed.

Less Bearish

The book value of the country’s shortfall grew by C$15.7 billion to C$230 billion, Statistics Canada said in Ottawa today. Canada’s net foreign debt has grown since the end of 2008 as the global financial crisis brought a rise in foreign demand for Canadian bonds.

Options traders are becoming less bearish on the Canadian dollar. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded at 2.7 percentage points, down from 2.8 percentage points at the end of last week and 3.2 percentage points at the end of May. It averaged 1.9 percentage points this year.

‘Very Nervous’

Canada’s industrial companies are expected to report that their use of production capacity in the first quarter held steady at 80.5 percent, according to the the median estimate of 11 economists surveyed by Bloomberg.

Investors are paring their positions and abstaining from taking on new risk ahead of the economic data, Dean Popplewell, chief strategist at the online currency-trading firm Oanda Corp., said in a telephone interview. The headline-dominated market is “very nervous,” he said.

The loonie is down 1.4 percent over three months against nine developed-nation peers tracked by Bloomberg Correlation Weighted Indexes. The greenback has gained 2.7 percent and the yen is up 8.9 percent. The euro has slumped 1.5 percent.

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