Canada Dollar Little Changed as Carney Says Global Economy Slows
Canada’s dollar was little changed versus its U.S. counterpart, erasing gains after Bank of Canada Governor Mark Carney said he will adjust economic forecasts to reflect a slowing global recovery, fueling speculation that he won’t raise interest rates in the short term.
The central bank’s revised forecast next week “will take into account the impact of the uncertainty,” Carney said in the text of a speech that he gave in Nanaimo, British Columbia. Canada’s dollar advanced earlier as existing home sales rose 2.5 percent in September from the previous month. U.S. retail sales gained 1.1 percent last month, following a revised 1.2 percent advance the prior month, Commerce Department figures showed in Washington.
“The speech was more dovish than Carney has been lately,” said David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank. “Equities are closing on a good tone and the Canadian dollar should be stronger on the back of that, so obviously there is some impact on his statement going through the market and reaching the loonie, however minor.”
The loonie, as the currency is nicknamed, traded at 98.07 cents per U.S. dollar at 5 p.m. in Toronto, after gaining as much as 0.3 percent. One Canadian dollar buys $1.0197.
The Standard and Poor’s 500 Index gained 0.8 percent. Crude oil futures were little changed at $91.77 a barrel in New York, after reaching as low as $89.79. The Standard & Poor’s GSCI Index of 24 raw materials lost 0.3 percent.
The loonie has strengthened beyond its 50-day, the 100-day, and the 200-day moving averages. Crossing a moving average is often considered a turning point in the direction of a security’s price.
Canada’s two-year notes rose for the second day, with the yield down six basis points, or 0.06 percent, to 1.08 percent. The 1 percent bonds maturing in November 2014 added 12 cents to C$99.84.
Investors in Canadian corporate bonds are extending a rally in BBB rated companies by chasing issuers including uranium miner Cameco Corp. (CCO)
The additional yield investors demand to hold the debt of Canadian BBB rated companies has narrowed 34 basis points since the end of June to 190 basis points, the smallest premium since May 2011, according to Bank of America Merrill Lynch data. Relative yields on Cameco’s C$500 million ($510 million) of 5.67 percent bonds maturing in September 2019 narrowed 40 basis points since then, the data show, as the shares fell 17 percent on declining uranium prices.
The currency earlier fell as Canadian businesses curbed their expectations for sales growth, investment and hiring over the next year on signs of weaker global demand, according to a Bank of Canada survey.
Global demand is being curtailed by uncertainty created from the 19 crisis meetings of euro-zone leaders during the past two years and whether the U.S. will avoid legislated fiscal tightening that will occur unless Congress acts, the so-called fiscal cliff, Carney said.
“This may indicate that the Bank may revert to a more neutral stance next week but will stop short of telegraphing a rate cut,” Mazen Issa, Canada macro strategist at Toronto- Dominion Bank’s TD Securities, said in a phone interview. He said a rate cut remains a low probability.
Carney has said since April that that tighter policy “may become appropriate” as the economy moves toward full output, a phrase that didn’t appear in today’s text. The speech is Carney’s last scheduled public appearance before the interest- rate decision Oct. 23 and full economic forecast a day later. Canada’s key interest rate has been at 1 percent for two years, the longest pause since the 1950s.
The sale of homes rose to 36,601, from 35,712 in August, the Canadian Real Estate Association said in an e-mailed statement. Home sales were down 15.1 percent from the same month last year.
U.S. consumer exceeded projections as the median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent rise.
The U.S. retail sales report “is encouraging because it’s reinforcing the view that there is still life in the U.S. consumer sector and that despite the sluggishness in the labor market, the household sector is holding on in the U.S.,” Audrey Childe-Freeman, head foreign-exchange strategist at Bank of Montreal (BMO) in London, said in a phone interview. “That should be supportive of the Canadian dollar.”
The loonie has added 2.3 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation- Weighted currency Indexes. The greenback has declined 2.3 percent.
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