Canadian Dollar Falls as Carney Douses Rate-Increase Speculation

The Canadian dollar weakened the most in about three months against its U.S. peer after Bank of Canada Governor Mark Carney suggested he may reduce his economic outlook and delay raising policy interest rates.

The loonie, as the currency is nicknamed for the image of aquatic bird on the C$1 coin, fell against almost all of its most-traded peers after Carney’s comments yesterday that his quarterly economic forecast next week will reflect a prolonged global recovery. Dalton McGuinty said yesterday he is stepping down as Ontario premier amid controversy over canceled power plants and an inability to implement budget cuts.

“A lot of people were riding the Canada bull rhetoric, Carney ride and now is the time to pare back some of those positions, and the market is doing so,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a phone interview. “He has certainly been less aggressive and fixed income and money markets are pricing out a hike anytime soon, pushing it to the curb.”

Canada’s currency weakened for a third day, falling 0.6 percent to 98.66 cents per U.S. dollar at 5 p.m. in Toronto, the biggest decline since July 23. One Canadian dollar buys $1.0136.

Oil, the country’s largest export, gained 0.2 percent to $91.99 a barrel. The Standard & Poor’s Index climbed 1 percent, the most in a month. The S&P GSCI Index of 24 raw materials added 0.2 percent.

Factory Sales

Canadian factory sales rose three times faster than economists forecast in August on gains in energy and automobiles. Sales climbed 1.5 percent to C$49.5 billion ($50.2 billion), Statistics Canada said today in Ottawa. The percentage gain exceeded all forecasts in a Bloomberg News survey of 22 economists.

“We would fade the headline strength in manufacturing sales, as this number could be revised lower,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said in a note to clients. “Set against the backdrop of weak foreign demand, the prospects for a robust rebound in manufacturing activity over the balance of the year are dim.”

Government bonds fell, pushing the benchmark 10-year note up 0.03 percentage point, or three basis points, to 1.83 percent. The price of the 2.75 percent notes maturing in June 2022 fell 25 cents to C$108.15.

Economic View

The central bank’s revised forecast next week “will take into account the impact of the uncertainty,” Carney said in the text of a speech that he gave in Nanaimo, British Columbia, yesterday. Carney has said since April that that tighter policy “may become appropriate” as the economy moves toward full output, a phrase that didn’t appear in yesterday’s text.

“Governor Carney’s comments yesterday were far less hawkish than previous ones so it has the market reevaluating their expectation for an interest-rate hike in Canada,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a phone interview. “The other side is that we have political uncertainty in Ontario now. Ontario is a province that is struggling and it’s a large and important province for the Canadian economy. There are subtle undertones that it is important for the Canadian dollar, even though the federal side is far more important.”

Investments in Canadian money market securities increased more than in any other country last quarter, sparked by an exodus from the zero yields and under-capitalized banks in Europe.

Investments in short-term debt sold mostly by Canadian banks almost doubled to 11 percent of the $383 billion in U.S. money-market funds tracked by Fitch Ratings. Canada ranked third based on allocations to its money markets, up from eighth a year ago, according to the Oct. 11 Fitch report.

Foreign Purchases

Foreigners bought Canadian securities for a second consecutive month in August, led by debt issued by companies and government enterprises, Statistics Canada said today.

Purchases totaled C$6.90 billion in August following July’s purchase of C$6.67 billion. The total included C$2.77 billion of money-market paper, and C$5.21 billion of corporate and government-enterprise bonds. Foreign investors also sold C$595 million of stocks.

The Canadian dollar has gained 1.2 percent this year among 10 industrial-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback has fallen 2.6 percent and the euro is down 1.8 percent for the year.

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