The Canadian dollar weakened for a fifth week against its U.S peer, its longest skid since June, as the Bank of Canada indicated it won’t raise interest rates anytime soon with inflation slowing more than forecast.
The currency pared its weekly decline yesterday after the economies of Canada and the U.S. posted stronger-than-forecast employment gains, increasing risk appetite. The so-called loonie fell earlier this week as central-bank Governor Mark Carney softened language about tighter policy, saying inflation will “remain low in the near term.” Gains in new home prices slowed in January, according a Bloomberg News survey before the report’s March 14 release.
“With the direction the Bank of Canada is implying to the market, we are looking for the Canadian dollar to weaken off in the coming months,” John Curran, senior vice president at Canadianforex Ltd., an online foreign-exchange dealer, said by phone in Toronto yesterday. The boost from the employment reports is “going to be a short-term plus,” he said.
The loonie, as Canada’s dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0287 per U.S. dollar this week in Toronto. It touched C$1.0337, close to the eight-month low of C$1.0342. One Canadian dollar buys 97.21 U.S. cents.
Canada’s benchmark 10-year government bond fell, with yields rising 13 basis points, or 0.13 percentage point, to 1.93 percent. It was the biggest advance since the week ended Jan. 4. The 2.75 security maturing in June 2022 fell C$1.19 to C$106.88.
The Bank of Canada will auction C$1.5 billion ($1.46 billion) of 30-year bonds on March 13. The 3.5 percent securities will mature in December 2045.
Futures traders increased their bets that the Canadian dollar will decline against the U.S. dollar to the highest level since March 2007, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 46,663 on March 5, compared with net shorts of 21,433 a week earlier. That’s the most net-shorts since March 2007.
At the same time, options traders became more bullish on the Canadian dollar during the past week. The three-month 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded at 1.3 yesterday, down 7.1 percent this week. It hit 1.5 on Feb. 26, the highest since Sept. 7, and has averaged 1.07 this year.
Canadian employment rose by 50,700 last month, more than double the highest prediction in a Bloomberg News survey with 22 responses and a median estimate of 8,000. The jobless rate remained at 7 percent, the lowest since December 2008, while economists predicted it would rise to 7.1 percent.
Employment in the U.S. increased 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped to 7.7 percent from 7.9 percent.
“The dual employment reports, the Canadian and U.S. reports, led the Canadian dollar to surge in the face of a stronger U.S. dollar against the rest of the major currencies,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said yesterday by phone from Toronto.
The loonie declined 0.5 percent on March 6 after the central bank kept its benchmark rate at 1 percent even as Carney retained the bias that rates will rise over time. He has warned in every policy decision since April that rates could go up, making him the lone Group of Seven central banker who has indicated he might raise interest rates.
“One data point isn’t going to change the Bank of Canada outlook,” Adam Button, a currency analyst at Forexlive.com in Montreal, said of the jobs report yesterday by phone. “But the BOC will be glad that they left a slight hawkish bias.”
New home prices rose 0.1 percent in January on a monthly basis, according to a Bloomberg survey of economists, after a 0.2 percent gain in December.
The loonie has fallen 3.1 percent during the past six months among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 2.4 percent and the euro has surged 4.1 percent.