Canadian Dollar Declines as Economic Growth Is Outpaced by U.S.
Canada’s dollar fell for the ninth time in 10 days as better-than-forecast U.S. economic data highlighted the divergent growth prospects of the two nations.
The currency declined versus the majority of its 16 most-traded peers as more Americans signed contracts in May to buy previously owned homes than at any time in more than six years and U.S. jobless claims dropped. Federal Reserve Governor Jerome Powell said the central bank’s asset purchases may be scaled back later this year if growth holds up. A report tomorrow may show Canada’s economic growth slowed in April.
“The market is still thinking the dollar is heading higher in the medium term and trying to position for that,” Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, said by phone from New York. “It’s just people looking at the growth outlook for the U.S. and seeing the dollar rallying across the board, not just against Canada.”
The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, fell 0.1 percent to C$1.0477 per U.S. dollar at 5 p.m. in Toronto. It earlier touched C$1.0424, its strongest point since June 21. One loonie buys 95.45 U.S. cents.
Canada’s dollar, headed for its second weekly decline, is down 1.3 percent this month, 3.1 percent this quarter and 5.3 percent this year.
Canada’s 10-year government bonds rose, with yields falling eight basis points, or 0.08 percentage point, to 2.41 percent. The 1.5 percent security maturing in June 2023 added 71 cents to C$92.02.
Futures on crude oil rose 1.3 percent to $96.78 per barrel in New York and the Standard & Poor’s GSCI Index of 24 commodities rose 0.8 percent. The Standard & Poor’s 500 Index rose 0.6 percent.
“The drop in GDP is a contributing factor to the market sensing U.S. interest rates will rise before they do in Canada,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA), said by phone from Toronto.
Canada’s gross domestic product grew 0.1 percent in April compared to 0.2 percent growth the previous month, according to a Bloomberg survey of 20 economists.
The Bank of Canada, whose key interest rate of 1 percent is the highest among the Group of Seven nations, is the only central bank among them with a leaning toward higher rates. Governor Stephen Poloz reiterated that stance, even as he said on June 19 that Canada’s economic recovery will take “stability and patience.”
The index of U.S. pending home sales jumped 6.7 percent to 112.3, the highest since December 2006, figures from the National Association of Realtors showed in Washington. The increase exceeded all estimates in a Bloomberg survey of economists and was the biggest since April 2010.
Initial jobless claims decreased by 9,000 to 346,000 in the week ended June 22 from a revised 355,000 the prior period, the Labor Department reported today in Washington.
“I want to emphasize the importance of data over date,” Fed Reserve Governor Jerome Powell said today in Washington. Large-scale asset purchases “may be moderated somewhat more quickly” should the economy strengthen faster than officials anticipate, he said.
Fed Chairman Ben Bernanke said June 19 the U.S. central bank may begin tapering its $85 billion in monthly bond purchases this year and end them in mid-2014. The program, designed to put downward pressure on borrowing costs and spur growth, tends to debase the currency.
“You get the typical dollar rally on better U.S. numbers,” Matthew Perrier, director of foreign-exchange trading at Bank of Montreal, said by phone from Toronto. “Dollar weakens off on weak U.S. data as the market eases off their bets of early QE tapering, and then you get a strong set of numbers and dollar rallies as the market shifts back to the other side of the boat.”
The cost to insure the Canadian dollar against declines in its U.S. counterpart reached its lowest point in a week. The one-month so-called 25-delta risk reversal rate fell to 1.6750, the lowest since June 20. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.
Commodity currencies have been the biggest losers in the past month among 10 developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The loonie has lost 0.7 percent, compared with the Australian dollar’s 3.8 percent fall, the Norwegian Krone’s 2.7 percent drop, the New Zealand dollar’s 3.8 percent drop. The greenback is up 0.1 percent.
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