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Canadian Dollar Weakens to 10-Week Low on Slower-Growth View

The Canadian dollar fell to an almost 10-week low versus its U.S. counterpart as the Bank of Canada’s reduced growth forecast and less emphasis on raising interest rates weighed on investor optimism about the economy.

The currency traded weaker than parity for a second day after the central bank cut its forecast for growth this year to 2 percent from an October forecast of 2.3 percent. The greenback dollar’s 14-day relative-strength index against the Canadian dollar reached 68.9, close to the 70 level that some traders see as a sign that an asset may be about to reverse direction.

“It should hover around parity,” David Doyle, a strategist at Macquarie Capital Markets, said in a telephone interview from Toronto. “In the long run it’s likely that the Bank of Canada will be forced to raise interest rates in front of an announcement by the Federal Reserve.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.3 percent to C$1.0026 per U.S. dollar at 5 p.m. in Toronto, after reaching its weakest level since Nov. 16. One Canadian dollar purchases 99.74 U.S. cents.

Canada’s dollar traded below its 200-day moving average versus the greenback for a second day.

Technical Levels

The C$1.0040/60 per dollar zone is important, according to JPMorgan Chase & Co., citing technical analysis.

“I think it holds on the initial test of that area, but a break of the 99 U.S. cents area is necessary to suggest a bearish shift,” Niall O’Connor, a technical analyst at JP Morgan Securities, wrote in an e-mail.

Canada’s benchmark 10-year bonds fell, pushing the yield up one basis point, or 0.01 percentage point, to 1.89 percent. The 2.75 percent note maturing in June 2022 dropped 11 cents to C$107.36.

The Bank of Canada will auction C$2.9 billion ($2.89 billion) 10-year bonds Jan. 30. The 1.5 percent notes mature in June 2023, the central bank announced today.

The Canadian dollar fell to parity against its U.S. counterpart yesterday after the Bank of Canada meeting results were announced.

“While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 percent inflation target, the more-muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household suggest that the timing of any such withdrawal is less imminent than previously anticipated,” policy makers led by Governor Mark Carney said in a statement from Ottawa.

Central Bank

“There’s been a follow-through and more digestion after those comments from the BOC yesterday,” Greg Moore, a currency strategist at Toronto-Dominion Bank, said in a telephone interview. “The comments were certainly more dovish than anyone was really expecting.”

The loonie has declined 1.5 percent during the past week, the worst performer among the 10 developed-nation currencies monitored by the Bloomberg Correlation-Weighted Indexes. The dollar gained 0.4 percent.

Canada is the third-largest AAA-rated sovereign, behind Germany and Great Britain. The unemployment rate for the world’s 11th-largest economy dropped to a four-year low earlier this month.

“I would expect some modest Canadian dollar correction stronger in coming days and weeks,” Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc., wrote in a note to clients.

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