Canada’s dollar broke a two-day slide against its U.S. peer after trading near a 13-month high as a technical measure showed the currency dropped from levels that suggested the rally was too high.
The 14-day relative strength index for the Canadian dollar versus the U.S. dollar was 62 today after reaching 72.4 on Sept. 13. A reading above 70 indicates an asset may have rallied too far, too quickly and may be due for a retracement. The Canadian currency gained even as crude oil tumbled for a second day after the Reserve Bank of Australia warned of slowing growth in China, falling commodity prices and a global economy still “subject to significant downside risks.”
The loonie faced “damaged risk sentiment” in the past 24 hours, George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, wrote in a note to clients. “Yesterday’s late-day plunge in oil prices was a starting point, followed by dovish RBA minutes.”
The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, advanced 0.1 percentage point to 97.42 cents per U.S. dollar. It touched 96.33 on Sept. 14, the strongest level since August 2011. One Canadian dollar buys $1.0265.
Crude-oil futures dipped 1.4 percent to $95.29 a barrel in New York after tumbling 2.4 percent yesterday, including a $4 fall in three minutes before the expiry of October options contracts. Oil is Canada’s largest export.
U.S. stocks declined for the second day, with the Standard & Poor’s 500 Index falling 0.1 percent.
Canada’s dollar may weaken to support levels at 98.01, 98.42 and C$1.0002, which will attract renewed buying, RBC’s Davis wrote. That could push the loonie to re-test resistance at 96.34, with a close below that opening up 94.93 and 94.08. The last time it approached those levels was July 2011. Resistance and support refer to areas on a graph where orders may be clustered.
“We are retaining our bearish view” on the U.S. dollar, Davis said. “Not only are valuations at overbought levels, but a bearish divergence is beginning to form.”
Canadian companies are likely to take advantage of a risk appetite renewal among investors worldwide, pushing corporate debt issuance toward a record high this year.
Royal Bank of Canada and Bank of Montreal, the first and fourth largest underwriters of corporate debt this year, estimate that Canadian companies and banks will raise C$20 billion ($20.5 billion) of bonds in the final four months of 2012.
Canadian government bonds advanced for a second day, with the yield on the 10-year benchmark falling three basis points, or 0.03 percentage point, to 1.92 percent. The 2.75 percent security maturing in June 2022 rose 28 cents to C$107.38.
The Bank of Canada is auctioning C$1.4 billion of 30-year bonds tomorrow at noon. Two previous sales of the same amount of the securities this year yielded 2.41 percent in May and 2.79 percent in March. The yield on current 30-year bonds fell two basis points to 2.49 percent.
The Canadian dollar fell earlier as the RBA issued minutes of its Sept. 4 meeting that indicated growth slowing in China and signaled that policy makers were monitoring weaker commodity prices. RBA policy makers said that recent data on China’s growth were “a touch weaker, and this had been accompanied by a sharp decline in spot prices for iron ore and coking coal.”
China is the largest importer of oil and metals in the world and one of Canada’s biggest trading partners.
“Market participants are concerned that there hasn’t been a policy response from China,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a phone interview. “With no policy response from China, does that mean the commitment to engineer a soft landing from China is waning?”