Canada’s dollar weakened for a fifth day against its U.S. counterpart in the longest losing streak since October as crude oil, the nation’s biggest export, dropped amid ebbing risk appetite.
The currency fell to the weakest level since July as commodities and global stocks sank a day after minutes of the Federal Open Market Committee’s last meeting spurred bets the U.S. central bank may slow its monetary stimulus. The American dollar rose versus most major peers as investors sought refuge amid concern U.S. lawmakers will fail to head off $1.2 trillion in automatic spending cuts set to begin next week.
“The main driver of Canadian-dollar weakness was yesterday’s FOMC announcement,” John Curran, senior vice president at Canadianforex Ltd., an online foreign-exchange dealer, said in a telephone interview from Toronto. “Oil weakness, or weakness across asset classes, has fallen in line with the Federal Reserve’s statement.”
The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0185 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0208, the weakest since July 25. The loonie’s last five-day stretch of losses ended Oct. 29. One Canadian dollar buys 98.18 U.S. cents.
Implied volatility for three-month options on the U.S. dollar versus the loonie reached 6.99 percent, the highest since Oct. 23, exceeding the 200-day moving average of 6.96 percent. Implied volatility signals the expected pace of currency swings and is quoted by traders to set option prices. The five-year average is 11.6 percent.
Canada’s government bonds rose, pushing yields on the benchmark 10-year debt down three basis points, or 0.03 percentage point, to 1.98 percent. The price of the 2.75 percent securities due in June 2022 increased 29 cents to C$106.48.
The Bank of Canada said it will auction C$3.4 billion ($3.3 billion) of five-year notes on Feb. 27. The 1.25 percent securities will mature in March 2018.
Standard & Poor’s GSCI Index of 24 raw materials fell as much as 1.7 percent to 656.93, the lowest level since Jan. 18. Crude oil for April delivery slid to as low as $92.63 a barrel in New York, the least since Jan. 7. Raw materials including oil account for about half of Canada’s export revenue.
The S&P 500 Index lost 0.6 percent, and the MSCI World Index sank 1.3 percent as investors sought safer assets.
“The Canadian dollar has been caught in the updraft of U.S. dollar strength,” Adam Button, a currency analyst at Forexlive.com in Montreal, said in a telephone interview.
The greenback climbed yesterday against 13 of its 16 most-traded peers, including Canada’s dollar, as stocks and commodities slid after the minutes of the Fed’s last meeting were released. They showed several officials said the central bank should be ready to vary the pace of the $85 billion in monthly bond purchases it’s making to spur economic growth.
The loonie has weakened 1 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar and the euro have climbed 2 percent.
Eight days are left before the budget cuts begin in the U.S. unless lawmakers head them off. Inaction would lower gross domestic product by 0.6 percent and cost 750,000 jobs by year-end, according to the non-partisan Congressional Budget Office. The reductions, part of a 2011 deal, were supposed to be so onerous Congress and the president would never let them occur.
“There’s growing concern for the sequestration on March 1,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto.
The loonie headed for a third straight weekly loss before data tomorrow forecast to show Canada’s inflation rate slipped to the lowest in more than three years and retail sales fell.
The consumer price index increased 0.6 percent in January from a year earlier, a Bloomberg survey showed before Statistics Canada reports the data. It was 0.8 percent in December, the lowest level since October 2009.
Bank of Canada Governor Mark Carney reiterated to lawmakers last week in Ottawa that an increase in the benchmark interest rate, which has been 1 percent since 2010 to spur growth, is less urgent because inflation has been slower than forecast.
Retail sales declined 0.3 percent in December after rising for five consecutive months, according to the median forecast in a separate Bloomberg survey before tomorrow’s report.
The loonie may have weakened too much, too fast, and be due to strengthen, a technical measure indicated. The currency’s 14-day relative strength index against the U.S. dollar touched 24.6, its second day below the 30 level some traders see as a sign that an asset may be about to reverse direction.
Canada’s dollar will gain to 98 cents per U.S. dollar by year-end, according to the median forecast of 47 economists surveyed by Bloomberg.