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Canada Dollar Trades in Tightest Range in Week on Growth Outlook

Oct. 12 (Bloomberg) -- The Canadian dollar traded in the narrowest range with its U.S. counterpart in more than a week as traders speculated whether measures taken by central banks around the world will spur economic growth.

The currency weakened against the greenback on concern that European officials may struggle to finance a bailout if Spain seeks assistance. The loonie, as the dollar is referred to because of image of the waterfowl on the C$1 coin, traded in the range of 0.004 cents per U.S. dollar, narrowest since Oct. 2.

“This is the very definition of a range trade for the Canadian dollar,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said in a phone interview from Toronto.

Canada’s currency traded at 98.02 cents per U.S. dollar at 5 p.m. in Toronto, down 0.16 percent from 97.86 cents yesterday. One Canadian dollar buys $1.0202. The loonie was little changed over the Thanksgiving holiday-shortened week.

The euro pared an advance, raising risk aversion, after Reuters reported that the European Stability Mechanism lacks the cash to bail out Spain if the country asks for help before the end of the year. Guidelines obtained by Bloomberg News last month showed the fund has the authority to raise cash through the sale of fixed-income securities.

‘Risk Sentiment’

“That’s definitely taken some wind out of the Canadian dollar,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said in a phone interview. “There’s very little on the North American calendar and on the global front, so any sort of headline risk out of Europe is playing with risk sentiment.”

Canadian bonds little changed, with the benchmark 10-year note yielding 1.80 percent. The price of the 2.75 securities maturing in June 2022 added 7 cents to C$108.40.

Slowing global growth is impacting Canada, with economists cutting their yield forecast on two-year bonds for the first time since July. Yields will end the year at 1.12 percent, down from 1.2 percent forecast last month, a median estimate of 13 economists surveyed by Bloomberg news. Returns on Canadian bonds have trailed behind those of 25 other developed nations except for Spain this year, as the Bank of Canada maintains a tightening bias and investors favor the debt of economies propped up by central-bank easing.

Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have warned that a surge in household debt could represent a threat to the Canadian economy as banks may reduce lending. Consumer cutting of personal debt is fueling investor demand for holding the bonds of Canadian banks with the smallest yield premium compared with their global competitors.

‘Finding Support’

“When there’s nothing going on in the market like right now, people are going to look to other markets such as oil and equities to see how those are doing,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said in a phone interview from Toronto. “When those are doing nothing, you look at the technicals. Technicals are suggesting that we are finding support around the 97.60 area.”

Oil, the country’s largest export, fell 0.2 percent to $91.86 a barrel in New York. The Standard & Poor’s Index fell 0.3 percent.

The loonie has strengthened 2.4 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 2.2 percent.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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