The Canadian dollar rose against most major counterparts as manufacturing in the U.S., Canada’s largest trading partner, increased in December at the second-fastest pace in more than two-years.
The currency fell against the U.S. dollar after climbing earlier to the strongest level in a week after initial claims for American jobless benefits fell to the lowest in a month. Bank of Canada Governor Stephen Poloz has said stronger growth will depend on increased exports as domestic consumer spending slows down. Crude oil, Canada’s largest export, sank to the lowest level in a month.
“If the U.S. economy can outperform, the Canadian dollar should be able to ride its coattails to a solid performance,” said Adam Button, a currency analyst at Forexlive.com, by phone from Montreal. “The Canadian dollar has done fairly well on solid manufacturing data from the U.S.”
The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0670 per U.S. dollar at 5:00 p.m. in Toronto. Earlier it touched C$1.0589 per U.S. dollar, the strongest level since Dec. 23. One loonie purchases 93.72 U.S. cents. The currency dropped 6.6 percent in 2013, the biggest loss against the greenback in five years.
Futures for the U.S. benchmark crude oil fell as much as 3 percent to $95.43 per barrel in New York, the lowest point since Dec. 3.
The discount between a barrel of Western Canada Select heavy oil compared with West Texas Intermediate, the U.S. benchmark, was $21.50, the least since August.
“You’ve seen crude oil off by a couple percent, that’s probably weighing a bit, just kind of a knee-jerk reaction,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “In a thinly liquid market, that could be contributing to some of the weakness.”
Canada’s benchmark 10-year government bond rose, with yields falling two basis points, or 0.02 percentage point, to 2.74 percent. The price of the 1.5 percent security maturing in June 2023 increased 13 cents to C$89.80.
The Canadian dollar has declined an average 0.3 percent in January in the last five years.
Implied volatility for three-month options on the U.S. dollar against its Canadian peer rose to 7.2 percent, the highest in four weeks. The measure is used to set option prices and gauge the expected pace of currency swings. The 2013 average is 6.7 percent.
In the U.S., the Institute for Supply Management’s factory index eased to 57 from the prior month’s 57.3, which was the highest since April 2011, the Tempe, Arizona-based group said today. Readings above 50 indicate growth.
Applications for U.S. unemployment benefits declined last week to the lowest level in a month, falling by 2,000 to 339,000 in the period ended Dec. 28, Labor Department data showed today in Washington. The median forecast of 26 economists surveyed by Bloomberg called for 344,000 claims.
The improvement in the U.S. economy and job market helps explain why the Federal Reserve decided to begin reducing stimulus. The central bank said Dec. 18 it will trim monthly bond purchases to $75 billion from $85 billion starting this month. By Dec. 20, the loonie had dropped to C$1.0738 per U.S. dollar, the lowest in three years.
Bond purchases tend to depress long-term interest rates, making U.S. securities less attractive than international peers and limiting the need for U.S. dollars.
“We have a U.S. growth story that looks fairly strong, as well as shifting Fed policy which is all supportive of the U.S. dollar,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia. “The domestic side of Canada is pretty quiet.”
The loonie dropped 4.9 percent in the past 12 months against nine developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar slid 13.4 percent, and the U.S. dollar gained 3.6 percent.