Canada Dollar Slips From One-Week High as Risk Appetite Shrinks
Canada’s dollar declined from almost the strongest level in a week as investors’ risk appetite ebbed amid concern Greece’s fiscal struggle will worsen Europe’s debt crisis and as tomorrow’s U.S. presidential election loomed.
The Canadian currency weakened against the majority of its 16 most-traded counterparts as building permits in the country fell at the fastest pace in more than a year and growth slowed at service industries in the U.S., Canada’s biggest trade partner. Greek Prime Minister Antonis Samaras faces a battle to win support for budget measures needed to obtain further aid.
“Slightly negative news out of Greece weakened the Canadian dollar,” David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank, said in a phone interview. “It seems that the austerity package may not get pushed through, which is going to be negative for the euro zone and the euro. The loonie will likely continue to trade in the range we’ve been in lately.”
The loonie, as the Canadian dollar is nicknamed for the image of the waterfowl on the C$1 coin, was little changed at 99.64 cents per U.S. dollar at 5 p.m. in Toronto after depreciating to as weak as 99.77 cents. It strengthened earlier to 99.41 after touching 99.22 cents on Nov. 2, the strongest level since Oct. 25. The currency has traded over the past two months between 96.33 cents and C$1.0019. One Canadian dollar purchases $1.0036.
The currency traded today above and below its 100-day moving average of 99.63 cents per U.S. dollar. It closed stronger than its 200-day average of 99.94 cents.
Moving averages are levels that are seen by some traders as turning points in the direction of a security’s price. The average, a momentum indicator, is calculated by adding closing prices for a specific number of assessment days, then dividing by that number.
Implied volatility for one-month U.S.-Canada dollar options rose from a seven-week low. It increased to 6.32 percent after touching 6.07 percent earlier, the least since Sept. 14. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.
Canada’s dollar has gained 1.1 percent this year against nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The greenback has lost 1.7 percent, the yen has dropped 6.3 percent and the euro has slid 3.1 percent.
U.S. stocks fluctuated today before U.S. citizens choose tomorrow between President Barack Obama and Republican challenger Mitt Romney. The Standard & Poor’s 500 (SPX) Index ended the day up 0.2 percent after falling as much as 0.4 percent.
“The coming week shifts the data to the backburner and delivers political events in three continents that may help define trading into year-end,” Jacqui Douglas, senior global strategist at Toronto-Dominion Bank’s TD Securities unit, wrote in a note to clients. That includes China’s National Party Congress on Nov. 8, and Greek budget votes this week, London- based Douglas said.
The U.S. election “will help lay the landscape for fiscal- cliff risks in the short-term and the policies for the next four years,” Douglas wrote. The fiscal cliff comprises more than $600 billion of U.S. tax increases and budget cuts scheduled to take effect next year unless Congress acts. The Congressional Budget Office has warned that the U.S. will suffer a recession unless the situation is resolved.
Canada’s longer-term government bonds rose for a second day, pushing yields on the 10-year benchmark note down one basis point, or 0.01 percentage point, to 1.76 percent. They touched 1.74 percent, the least since Oct. 4. The price of the 2.75 percent security due in June 2022 added 8 cents to C$108.68. Twenty-year bond yields fell one basis point to 2.31 percent.
In Greece, Samaras faces a revolt in his three-party coalition over austerity as the nation seeks a 31 billion-euro ($40 billion) financing installment this month. The leader of the Democratic Left yesterday reiterated his party’s opposition to changes in the labor law demanded by international creditors.
While no date has been set for a vote on that legislation, it may come as soon as Nov. 7. The budget vote is scheduled for Nov. 11.
“The general sentiment is risk-off,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said in a telephone interview. “There’s a renewed focus on Europe and potentially political uncertainty in Greece as they move into two votes this week that could throw the coalition under pressure.”
Canadian building permits dropped 13.2 percent to C$6.48 billion ($6.5 billion) in September from a record high the previous month, Statistics Canada said today in Ottawa. They were forecast to decline 3 percent, according to economists surveyed by Bloomberg News.
The Institute for Supply Management’s U.S. non- manufacturing index declined to 54.2 last month, from 55.1 in September, the Tempe, Arizona-based group said today. Economists projected 54.5, according to the median estimate in a Bloomberg survey. Readings above 50 signal expansion in the gauge of industries that account for almost 90 percent of the economy.
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