Canada’s dollar gained against its U.S. counterpart as traders squared positions before Greek elections in two days that may foreshadow the first exit from the 17-nation currency union.
The currency declined against 10 of its 16 major peers on concern crude oil will fall below $80 a barrel, even as stocks rose on speculation the Federal Reserve will initiate a third round of quantitative easing. Canada’s dollar extended a loss after Statistics Canada said factory sales fell for the third time in four months.
“Investors are really waiting to see what happens over the weekend,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said by e-mail. “Our view is that uncertainty persists beyond Sunday, event risk is significant and the Fed disappoints those looking for easing next week. The U.S. dollar should recover.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 0.1 percent to C$1.0217 per U.S. dollar at 5 p.m. in Toronto after falling as much as 0.3 percent. One Canadian dollar buys 97.88 cents. It posted a 0.5 percent gain against the greenback over the past five days.
The benchmark 10-year yield dropped eight basis points, or 0.08 percentage point, to 1.72 percent today. The yield dropped to 1.615 percent on June 1, the lowest since at least 1950, according to Bloomberg and Bank of Canada data. Economists are reducing forecasts for Canadian 10-year bond yields by the most since September on speculation the government’s comparatively small deficit makes the debt attractive amid an unresolved European debt crisis.
Yields on Canada’s 2.75 percent bonds due in June 2022 will end 2012 at 2.15 percent, according to the median of 16 forecasts compiled by Bloomberg. That’s down 45 basis points from the May prediction and the biggest quarterly forecast cut since September. Economists in a separate survey predict the U.S. 10-year yield will rise to 2.17 percent by year-end from 1.58 percent today.
Traders are increasing bets the threat of a Greek exit from the euro will lead the Bank of Canada to reduce interest rates from the current 1 percent. The yield on September 2012 bankers’ acceptances contracts fell to 1.13 percent, the lowest level since June 1. So-called Bax contracts have settled an average of about 20 basis points above the central bank’s target rate since 1992, data compiled by Bloomberg show.
Investors are pricing in as many as 19 basis points of central-bank easing by December. There’s a 60 percent chance of a cut of at least one quarter-percentage point this year, according to Bloomberg calculations on overnight index swaps.
“We have some fear creeping back into the market ahead of the weekend’s Greek elections,” David Love, a trader of interest-rate derivatives in Montreal at Le Groupe Jitney Inc., a brokerage, said in an e-mail. He said the December Bax contract “broke out of a pennant formation,” indicating the yield may move to recent lows. A pennant is formed when ascending and descending trend lines intersect to create a triangle.
Futures on crude oil fell 0.3 percent to $84.18 a barrel in New York after dropping to $81.07 on June 12, the lowest since October. Canada is the largest supplier of crude to the U.S., the world’s biggest consumer.
“Oil is basing at around the $80 level,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA, said by phone from New York. “People are afraid it’s going to break lower on the China-India slowdown. There’s also some concern over the economic data which may be showing signs of a slowdown.”
Declining aerospace equipment and energy production pushed factory sales down 0.8 percent to C$49.1 billion ($48 billion) after a 1.9 percent gain in March, Statistics Canada said today in Ottawa. The decline was weaker than all 20 estimates in a Bloomberg economist survey that had a median 0.2 percent gain forecast.
The Canadian currency reached C$1.0216 today, the strongest since June 11, before elections in Greece on June 17 on speculation central banks will engineer coordinated stimulus measures to ease financial turmoil in financial markets.
“An outcome in favor of the austerity measures is the most probable,” Societe Generale’s Galy said of the election. “That should be relatively positive for risky assets.”
The Canadian dollar dropped 0.9 percent this week, according to Bloomberg Correlation-Weighted Indexes, the second-worst performer after the greenback, which fell 1.3 percent. New Zealand’s dollar led gainers at 1.2 percent. The euro declined 0.3 percent.