The Canadian dollar had its biggest drop in more than a year against its U.S. peer as gold led commodities down with its biggest loss in 33 years after China’s growth slowed more than forecast in the first quarter.
The currency weakened against the majority of its 16 most-traded peers on speculation slowing growth at home and abroad will lead the Bank of Canada to trim its economic growth forecast at a policy meeting April 17. Data released last week showed retail sales in the U.S., Canada’s largest trading partner, unexpectedly contracted in March. Commodities, including crude oil, Canada’s biggest export, fell.
“I do think it’s the continued downdraft in commodities and not only does that affect demand for the Canadian dollar in and of itself, but also probably has raised concerns about our domestic economy,” said David Doyle, a strategist at Macquarie Capital Markets by phone from Toronto. “If the Bank of Canada is confronted with a softness in commodity prices, if anything their statement and tone will probably shift to becoming more dovish, which I think would only pile on weakness to the CAD at this point.”
The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, fell 1.2 percent to C$1.0256 per U.S. dollar at 5 p.m. in Toronto, reaching its biggest decline since Dec. 8, 2011. One loonie buys 97.50 U.S. cents.
Gold futures fell as much as 9.7 percent in New York. Some investors buy gold as a hedge against inflation and currency declines. Standard & Poor’s GSCI Index of raw materials slid 2.3 percent.
Crude oil, the nation’s largest export, fell 4.3 percent to $87.38 a barrel in New York, touching the lowest level since December.
The cost to insure against declines in the Canadian dollar was at the highest in a month. The three-month so-called 25-delta risk reversal rate rose as high as 1.25 percent, the most since March 14. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.
Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart reached 6.32 percent, the highest since April 8. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.
“I think we’re going to push a little lower,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. “A lot of pressure on commodities is spilling over to the Canadian dollar; Canada is perhaps along for a bit of a ride. The outlook for slower growth in China suggests we’re going to see some more pressure on commodities.”
Canadian government bonds rose before the Bank of Canada’s policy meeting on April 17. Policy makers, who have kept their key interest rate at 1 percent since September 2010, will do so again this week and probably into next year, according to economists surveyed by Bloomberg News.
Derivatives point to a five-basis point cut by the central bank’s final meeting of the year, according to Bloomberg calculations based on trading in overnight-index swaps. As recently as January, the median forecast by economists called for a 12 basis point increase at the end of the year.
The yield on the benchmark 1.5 percent security due June 2023 fell three basis points to 1.71 percent.
The Bank of Canada will announce additional details on April 18 about an April 24 auction of securities maturing in
China’s gross domestic product expanded 7.7 percent last quarter from a year earlier, the National Bureau of Statistics said in Beijing. That compares with the 8 percent median forecast in a Bloomberg News survey and 7.9 percent growth in the previous three months.
“The Chinese number not hitting that 8 percent, and if anything it swung down a bit on the near-term basis, I think just erased some of this sentiment the global economy is gaining traction,” said David Watt, chief economist at the Canadian unit of HSBC Holding Plc. “To the extent that this represents a slowdown in the global economy, I think it hits Canada.”
The Canadian dollar has fallen 1.2 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index, trailing its commodity exporting peers Australia and New Zealand, whose currencies have risen 1.6 percent and 4.1 percent this year. The U.S. dollar has risen 2.4 percent this year and the euro has gained 1.2 percent.