Canadian Dollar Falls Against Major Peers as Risk Demand Wanes

Canada’s dollar fell versus a majority of its most-traded counterparts, dropping to the lowest level in more than a week against its U.S. peer, as risk aversion damped demand.

The currency fell along with its commodity-linked peers of Australia and New Zealand against havens such as the yen and Swiss franc as regional finance ministers gathered in Brussels to discuss crisis-fighting measures. Spanish and Italian bonds fell amid concern ministers will fail to stem the euro area’s woes.

“Concern over Spanish bond yields is causing the market to take a bit of risk off the table,” said Blake Jespersen, managing director of institutional foreign exchange sales in Toronto at Bank of Montreal, in a telephone interview. “I’d expect the Canadian dollar to weaken off against the U.S. dollar over the course of the week.”

The loonie, as Canada’s currency is sometimes known, weakened as much as 0.3 percent to C$1.0221 per U.S. dollar, the lowest since June 29, before trading little changed at 5 p.m. in Toronto. One Canadian dollar buys 98.11 cents.

Jespersen predicted the loonie may drop to C$1.03 this week against the greenback.

The Canadian dollar may fall against its U.S. peer after a “bullish outside bar” confirmed technical chart patterns, according to MacNeil Curry at Bank of America Corp.

The currency, dubbed the loonie, may drop to C$1.05 per U.S. dollar, Curry, head of foreign-exchange and interest-rates technical strategy in New York at Bank of America, wrote in a note to clients today. Chart patterns show a “three wave decline” into the 200-day moving average at C$1.0114.

“What we’ve seen over the last five weeks is just a classic counter-trend correction” in a larger downward trend for commodities and their tied currencies, Curry said in a telephone interview.

The Standard & Poor’s 500 Index declined 0.2 percent. The MSCI All-Country World Index fell 0.5 percent. Italian 10-year debt yields rose eight basis points, or 0.08 percentage point, to 6.07 percent, while Spanish 10-year yields added 11 basis points to 6.98 percent.

Price Swings

Implied volatility for one-month options on the Canadian dollar versus the greenback increased for the first day in five, rising to 7.65 percent, after falling to 6.59 percent on April 30, the lowest this year. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Government bonds advanced for a second day, pushing the yield on the benchmark 10-year bond lower by three basis points to 1.66 percent. The price of the 2.75 percent security maturing in June 2022 rose 26 cents to C$109.93.

“Risk-seeking still seems hesitant,” Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc, said by e-mail. “The Canadian dollar could struggle against the U.S. dollar. But it has a clearer relative fundamental advantage versus the crosses.”

Canada’s dollar reached the highest in more than two years against the euro after the European Central Bank cut its key interest rate last week. The Bank of Canada will hold its policy rate unchanged at 1 percent through year-end, according to the median forecast of 23 economists in a Bloomberg survey.

Swaps Data

Trading in overnight index swaps showed odds of no change in the central bank’s target rate at its July 17 policy meeting were about 97 percent, according to Bloomberg calculations.

The euro dropped as much as 0.5 percent to C$1.2466 today, the lowest since June 10, 2010.

“Our bias towards a lower euro versus the Canadian dollar continues to be vindicated,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, wrote in a note to clients today. “We would regard rallies back to C$1.2595 as being worth fading.”

The loonie has gained 1.8 percent this year among 10 developed-nation currencies in Bloomberg Correlation Weighted Indexes, with the U.S. dollar adding 1.6 percent. The leading decliner is the euro, dropping 4 percent.

The New Zealand dollar, up 4.5 percent in 2012, is the top performer in the Bloomberg indexes. The Australian dollar is up 1.6 percent.

Commodity Currencies

“It’s time for commodity currencies to catch up to the downside,” said Geoff Kendrick, head of European currency strategy at Nomura Holdings Inc., by phone from London. “I definitely would think about buying” the U.S. dollar versus the Canadian dollar.

Canadian businesses are less optimistic about their future sales on concern about the global economy, according to a Bank of Canada survey that also shows companies’ hiring intentions matching a record high.

The balance of opinion for sales during the next year fell to 15 percentage points in the central bank’s survey of about 100 executives. The prior balance of 35 points was the highest since the first quarter of 2010.

“Businesses generally remain positive about the outlook, but are mindful of renewed uncertainty regarding the global economic environment,” the Ottawa-based bank said today in its survey of about 100 executives taken May 22 to June 14.

Canadian housing starts fell to 205,000 last month, compared with 211,400 in May, according to the median of 20 forecasts compiled by Bloomberg. Canada Mortgage and Housing Corp. is due to report the data tomorrow in Ottawa.

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