Feb. 28 (Bloomberg) -- The Canadian dollar weakened to the lowest level in eight months as slower-than-forecast growth in the U.S., the nation’s largest trading partner, added to concern a report tomorrow will show the economy contracted.
The currency fell against the majority of its most-traded peers as the current-account deficit narrowed less than economists surveyed projected. Canadian gross domestic product shrank 0.2 percent in December, resulting in fourth quarter growth holding steady at 0.6 percent, according to the median estimates of two Bloomberg News surveys.
“The weakness was largely driven off the disappointment from the GDP data in the U.S. coming out much softer than expected,” said Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, by phone from Toronto. “Heading into the release tomorrow the dollar’s decline today certainly reinforces the theme of universal softness in tomorrow’s GDP report.”
The loonie, as the Canadian dollar is known for the image of the water fowl on the C$1 coin, fell 0.8 percent to C$1.0306 per U.S. dollar at 5 p.m. in Toronto. The currency earlier reached C$1.0313, the lowest since June 29. One loonie buys 97.03 U.S. cents.
The currency fell 3.3 percent in February, a second consecutive monthly decline and the biggest drop since May.
Canada’s benchmark 10-year bond rose, with yields falling three basis points, or 0.03 percentage point, to 1.83 percent. The 2.75 percent security maturing in June 2022 gained 25 cents to C$107.75.
A technical measure has suggested the loonie will soon reverse direction for the last seven trading days. The 14-day relative strength index against the U.S. dollar has been below 30 percent since Feb. 20. The measure is at 29.4 percent today.
The nation’s current-account deficit shrank to C$17.3 billion ($16.9 billion) in the fourth quarter, compared to the C$17 billion deficit forecast in the median of Bloomberg survey of 18 economists.
“We have expectation building into tomorrow’s expectedly weak Canadian data development,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank, in phone interview from Toronto. “We had the current account data miss expectations and that’s certainly not positive.”
Industrial production in Canada was flat in January, according to a separate report from Statistics Canada, missing the 0.3 percent growth forecast in the median of a Bloomberg survey of 11 economists.
The U.S. economy barely expand in the fourth quarter, erasing a previously estimated contraction, with 0.1 percent annual growth, figures up from a previously estimated 0.1 percent drop, according to Commerce Department data.
The loonie has fallen 1.5 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The greenback gained 2.8 percent and the Japanese yen lost 4.5 percent.
“We’ve got the GDP data tomorrow and the Bank of Canada next week, so I think what we’ve got in general is a market that is relatively cautious to the Canadian dollar,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, by phone from Toronto.
The next Bank of Canada interest-rate decision will take place on March 6.
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