Canada’s dollar touched the weakest level in almost two months as data showing the economy expanded in May failed to damp concern growth is lagging behind that of the U.S., its largest trading partner.
The currency later erased losses amid bets it had dropped too far, too fast. It fell for the first month since January even as the government said Canadian gross domestic product rose
2.3 percent from a year earlier, matching a Bloomberg forecast. The American economy climbed 4 percent at an annual rate in the second quarter, data showed yesterday. Initial U.S. jobless claims fell to an eight-year low in the past month, a report showed today, before July employment data due tomorrow.
“Initial jobless claims in the U.S. is signaling a relatively good reading for tomorrow’s nonfarm payrolls,” Martin Schwerdtfeger, a currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said in a phone interview. “The Canadian GDP print came on consensus.”
The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated as much as 0.3 percent to C$1.0930 per U.S. dollar, the weakest since June 9, before trading little changed at C$1.0906 per U.S. dollar at 5 p.m. in Toronto. It lost 2.2 percent in July. One loonie buys 91.69 U.S. cents.
Canada’s dollar weakened for a third day beyond its 200-day moving average, at C$1.0840, and traded for a second day weaker than its 100-day moving average, at C$1.0892.
The loonie erased losses as the 14-day relative-strength index for the currency versus the U.S. dollar was at 31, approaching the 30 level that signals it may have weakened too much, too fast.
“A bit of a bounce was to be expected,” David Doyle, a strategist at Macquarie Capital Markets in Toronto, said in an interview. “It declined so rapidly this week and over the last month or so.”
Crude oil, Canada’s biggest export, fell to a four-month low. Crude futures dropped as much as 2.7 percent to $97.61 a dollar in New York, the least since March 17.
Canadian government bonds were little changed, with benchmark 10-year debt yielding 2.16 percent. The yields fell to
2.09 percent on July 29, the lowest since June 2013.
The yield difference between the Canadian 10-year bonds and their U.S. peers reached the widest in seven years. Treasury 10-year notes yielded 2.56 percent, 40 basis points, or 0.40 percentage point, more than the Canadian securities, the most since July 2007.
“Yield spreads between the U.S. and Canada are widening, and there are weaker commodity prices today,” putting pressure on the loonie, Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, said in a telephone interview.
Canadian GDP increased 0.4 percent in May from a month earlier, Statistics Canada data showed, also in line with Bloomberg survey forecasts. It rose in April 0.1 percent on the month and 2.1 percent on an annualized basis.
The four-week average of U.S. jobless claims slid to 297,250, the lowest level since April 2006, from 300,750 the prior week. The American economy accelerated 4 percent in the second quarter, a report showed yesterday. Initial jobless-benefit claims in the U.S. dropped to an eight-year low over the past month, data showed today, before the July employment report tomorrow.
The Canadian currency has swung this year between a 4 1/2 year low and a six-month high as investor speculation fluctuated on when the central bank might raise the benchmark interest rate, which has been held at 1 percent since 2010 to support the economy.
Policy makers kept the rate unchanged on July 16. Bank of Canada Governor Stephen Poloz said an increase in inflation to
2.4 percent, above the central bank’s 2 percent target, is temporary and the nation doesn’t have “a sustainable growth picture.”