Canada’s dollar fell to its lowest this week before a report tomorrow that may show the nation’s economy shrank in June the most since 2009, while a gain in U.S. growth boosted the case for that country to slow stimulus.
The Canadian currency weakened for a second day as data showed U.S. gross domestic product accelerated more than initially estimated in the second quarter, bolstering bets the Federal Reserve will slow bond purchases that are considered negative for America’s currency. Canada’s dollar headed for a monthly loss. Crude oil, the nation’s biggest export, fell from the highest level in more than two years.
“The Canadian dollar is on its back foot and poised for more losses,” Adam Button, a currency analyst at forexlive.com, said by phone from Montreal. “The market has concluded the U.S. economy is good enough to taper in September.”
The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0532 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0541, the weakest level since Aug. 23, and has lost 2.4 percent in August. One loonie buys 94.95 U.S. cents.
Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart fell for a third day, dropping to 7.69 percent. The measure is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.8 percent.
The Canadian dollar lost 1.6 percent in the past month in a basket of 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. Currencies of other commodity-exporting countries such as Australia, Norway and New Zealand also sank, while the U.S. dollar gained 0.9 percent.
Government bonds rose, reversing earlier losses and pushing yields on Canada’s benchmark 10-year securities down two basis point, or 0.02 percentage point, to 2.60 percent. The yields increased earlier to 2.68 percent. The price of the 1.5 percent debt due in June 2023 added 15 cents to C$90.57.
Ten-year yields reached 2.78 percent on Aug. 22, the highest level since July 2011, before declining. They touched a two-week low of 2.56 percent on Aug. 27.
The nation’s economy shrank 0.4 percent in June in its first monthly contraction this year, according to a Bloomberg survey of 21 economists before tomorrow’s report. The drop would pare Canada’s second-quarter growth to an annualized 1.6 percent, economists forecast, after it expanded 2.5 percent from January through March.
U.S. GDP rose at a 2.5 percent annualized rate from April through June, up from previous reading of 1.7 percent, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg was for a 2.2 percent gain.
“We have a period where there is a gradual pickup in U.S. growth and a relatively slow underlying trend in Canadian growth,” said Jens Nordvig, a managing director of currency strategy at Nomura Holdings Inc., by phone from New York. “The dollar-Canada cross is already responding to those changes, but we think that process has more to run.”
The Fed buys $85 billion of bonds a month to put downward pressure on borrowing costs and spur growth in the world’s biggest economy. The purchases have spurred concern they’ll lead to inflation and debase the U.S. dollar. Investors are betting that a reduction in bond buying as the world’s largest economy improves will cause the greenback to strengthen against its Canadian peer.
“It is just the fears of QE tapering,” Christian Lawrence, a foreign-exchange strategist in London at Rabobank International, said today of the Canadian currency’s decline. “Whatever pace they start tapering QE in the U.S., the writing’s on the wall and it certainly has to be a dollar-positive story.”
Futures on crude oil, the country’s largest export, dropped 1.7 percent to $108.20 a barrel in New York as the prospect of an imminent attack on Syria faded. U.K. Prime Minister David Cameron, the U.S.’s top ally, struggled to win parliamentary backing for military strikes to retaliate for the Syrian government’s alleged use of chemical weapons on its own people. Crude reached $112.24 yesterday, the highest since May 2011, amid speculation military strikes would disrupt the supply of oil from the Middle East.
Standard & Poor’s GSCI Index of 24 raw materials declined 0.8 percent in its first drop in six days.
Canada’s current-account deficit widened in the second quarter as the previous period’s figure was revised downward. The C$14.6 billion ($13.9 billion) gap compared with the revised shortfall of C$13.4 billion in the first quarter. The current account is the broadest measure of trade because it includes investments.