The Canadian dollar traded at almost its lowest in eight months versus its U.S. counterpart as crude oil, Canada’s largest export, dropped to its weakest level in 10 weeks before the central bank’s interest-rate decision.
The currency fell against the majority of its 16 most-traded peers after a report showed companies in China, Canada’s third-largest destination for exports, are expanding at a slower-than-forecast pace. The so-called loonie pared losses as stocks rose on improved risk appetite. The Bank of Canada is forecast to hold its interest rate steady when it meets March 6.
“If the statements were to sound increasingly dovish, that tends to see the loonie come under renewed pressure,” Joe Manimbo, market analyst for Western Union Business Solutions, a unit of Western Union Co., said of the central bank in a phone interview from Washington. “I would suspect a sideways Canadian dollar in the run-up to the Bank of Canada meeting.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.1 percent to C$1.0273 per U.S. dollar at 5 p.m. in Toronto after declining as much as 0.4 percent. It touched C$1.0342 on March 1, its lowest point since June 29. One loonie buys 97.34 U.S. cents.
Canada’s benchmark 10-year government bond fell, with yields rising one basis point, or 0.01 percentage point, to 1.81 percent. The 2.75 percent security maturing in June 2022 fell seven cents to C$108.01. The Standard & Poor’s 500 Index of stocks rose 0.5 percent after falling 0.4 percent.
“Traders are finding it easy to sell the Canadian dollar on any negative news or any geopolitical hiccup,” Adam Button, a currency analyst at Forexlive.com, said by phone from Montreal. “And when there is good news, the Canadian dollar rallies are minimal.”
Canada’s dollar extended losses as futures on crude oil fell as much as 1.5 percent to $89.33 a barrel in New York, the lowest since Dec. 26, before trading at $90.28. S&P’s GSCI Index of 24 raw materials slid for a fifth day, declining 0.4 percent.
Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $27 to U.S. West Texas Intermediate, close to a three week high and above the 200-day moving average of $23.30.
The loonie declined earlier as China’s non-manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement yesterday. A reading above 50 indicates expansion.
Bank of Canada officials have held the benchmark interest rate at 1 percent since September 2010 to support the economy. Trading in overnight index swaps today showed investors have priced in as much as 17 basis points of easing by the central bank by its December meeting, data compiled by Bloomberg showed. A week ago, they had priced in two points of easing.
Central bank Governor Mark Carney said Feb. 25 some of the risks to the economy he highlighted last month are materializing and policy makers are sticking to their assessment that interest-rate increases have become less urgent than they had anticipated.
Future traders reversed wagers the loonie will rise against its U.S. counterpart, betting it will fall for the first time in eight months, figures from the Washington-based Commodity Futures Trading Commission show.
Hedge funds and other large speculators had 21,433 more bets the Canadian dollar would fall than bets it would gain, so-called net shorts, on Feb. 26, compared with 19,379 more bets it would gain, or net-longs, a week earlier.
“I expect data out of North America, particularly the U.S., to be more positive, more risk-friendly, and I don’t necessarily see the U.S. dollar appreciating on the back of that because of the sequester,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., by phone from Toronto. “So that could give the Canadian dollar a risk proxy support, despite a less hawkish Bank of Canada.”
Automatic across-the-board cuts of $85 billion to the U.S. federal government’s budget, known as the sequester, went into effect March 1, with presidential aides and congressional leaders signaling the reductions would continue for weeks, possibly months.
Both Canada and the U.S., the country’s largest trading partner, are forecast to have added jobs in February when they release employment data on March 8, according to economists surveyed by Bloomberg.
Canada added 8,000 jobs last month from a net job loss in January, according to a Bloomberg survey of 18 economists. The U.S. increased by 160,000 new jobs, according to a separate survey of 70 economists.
Canada’s dollar has fallen 1.2 percent this year among 10 developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar has gained 2.7 percent and the euro is up 1.3 percent.