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Canadian Dollar Weakens the Most Since June on Flaherty Outlook

The Canadian dollar fell the most since June versus its U.S. counterpart, erasing all of its gain registered yesterday, as risk aversion rose and Finance Minister Jim Flaherty said the nation may have to revise down its economic outlook.

The currency declined against the majority of its most-traded peers as Flaherty echoed comments from Bank of Canada Governor Mark Carney two days ago. A Federal Reserve report showed manufacturing in the Philadelphia region expanded in October for the first time in six months, raising the allure of the U.S. dollar.

“There’s so much uncertainty out there with all the range-trading in the major currencies,” Eimear Daly, a currency market analyst at Monex Europe Ltd. in London, said in a phone interview. “We saw such a massive rally yesterday and investors are getting nervous today, pulling back into the U.S. dollar where we had good data out of Philadelphia.”

Canada’s currency dropped 0.8 percent to 98.52 cents per U.S. dollar at 5 p.m. in Toronto. The loonie, as the currency is nicknamed for the image of aquatic bird on the C$1 coin, fell the most since June 28. One Canadian dollar buys $1.015.

Canadian bonds advanced, with the yield on the 10-year benchmark note declining two basis points, or 0.02 percentage point, to 1.9 percent. The price of the 2.75 percent securities maturing in June 2022 rose 14 cents to C$107.48.

Quarterly Forecast

Asked whether a deteriorating global economy would cause him to pare his growth forecasts, Flaherty told reporters, “so far, we’re still on track. The economists in Canada told us to anticipate moderate growth.”

“We may have to revise downward somewhat,” Flaherty said without being specific, adding “so far we’re in the same ballpark as we anticipated in the budget.”

The Canadian dollar weakened the most in about three months on Oct. 16 after Carney suggested he may reduce his economic outlook and delay raising policy interest rates during his quarterly economic forecast next week.

“The selloff of the Canadian dollar suggests that the market may be satisfied with the re-pricing of interest rate expectations in Canada after Bank of Canada Governor Mark Carney’s dovish-leaning comments on Monday,” George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in a note to clients.

The Fed Bank of Philadelphia’s general economic index rose to 5.7 from minus 1.9 in September. A reading of zero is the dividing line between expansion and contraction. The median forecast of 61 economists surveyed by Bloomberg was for an increase to 1.

Consolidation Pattern

The Standard & Poor’s 500 equities index fell 0.2 percent, snapping three days of gains. Oil, Canada’s largest commodity, was little changed at $92.10 a barrel. The S&P GSCI Index of 24 raw materials was flat.

“The Canadian dollar is trying to find a base around these levels,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, said in telephone interview. “We’ve seen over the past month or so on a day where we do see an outsize move, the next day is very quiet and it consolidates for a few days.”

The currency is trading at a 98.57 short-term moving average, compared with a 50-day average of 99.53 one month ago.

“It continues to bump off these lows we’ve seen over the past few weeks here, the 97.50-97.60 level,” Jespersen said. “Dollar Canada is trying to find a base around these levels and we don’t expect it to go any lower in the short-term.”

The loonie has added 1.2 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted currency Indexes. The greenback has dropped 2.8 percent, the second biggest decliner after the yen.

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