Canadian Dollar Falls First Time in 3 Days as Risk Demand Ebbs

The Canadian dollar fell against its U.S. counterpart for the first time in three days as global risk appetite declined.

The currency erased gains from earlier today as stocks declined and futures on crude oil, the nation’s largest export, slipped. A report tomorrow is projected to show housing starts slowed in December, which may indicate the country’s real estate market is headed for a soft landing.

“We had a bid for risk assets and the Canadian dollar overnight, but we’ve since come back,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said in a telephone interview from Toronto. “Risk appetite and equities still define the strongest correlation for the Canadian dollar.”

The loonie, as the Canadian currency is known for the image of the waterfowl on the C$1 coin, fell 0.1 percent to 98.67 cents per U.S. dollar at 5 p.m. in Toronto, after gaining as much as 0.2 percent. One Canadian dollar buys $1.0135.

Crude oil dropped 0.1 percent to $93.12 per barrel. The Standard & Poor’s 500 Index declined 0.3 percent.

Technical Levels

The Canadian dollar’s failure to move above a resistance level at 98.26 has stalled a longer-term increase versus the greenback, George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, wrote today in a note to clients. If the loonie breaks through resistance at 98.26, it would open up a move to 97.66 and then 96.92, which would be its highest level since Sept. 14, Davis said.

A gauge of volatility declined to almost the lowest in 12 years. Implied volatility for three-month options on the U.S. dollar versus the loonie touched 5.40 percent, the least since Dec. 20. It touched 5.32 percent on Dec. 19, the lowest since Oct. 11, 2000. Implied volatility signals the expected pace of currency swings and is quoted and used by traders to set option prices.

“I think most of the story is flows and repositioning,” said Greg Moore, a currency strategist at Toronto-Dominion Bank by phone from Toronto. “It’s been very quiet, there’s been very little data out, pretty few fundamental changes.”

The country’s 10-year bond yield fell three basis points, or 0.03 percentage point, to 1.91 percent. The price of the 2.75 percent notes maturing in June 2022 increased 29 cents to C$107.25.

Government Debt

The Bank of Canada said it will sell C$3.4 billion ($3.5 billion) of five-year notes tomorrow. The 1.25 percent securities will mature in March 2018. The central bank will announce further details of a two-year note sale on Jan. 10.

Construction started on 195,000 residential units in December, down from 196,100 the month before, according to the median estimate of a Bloomberg survey of 22 economists. The government tightened mortgage rules in June to slow the increase of consumer debt after the Bank of Canada cited the chance of a housing downturn as a major risk to the economy.

Canada’s Ivey index rose yesterday for the first time in five months. Economists had forecast a reading of 49.8. Readings of more than 50 indicate purchasing by governments and companies advanced.

The loonie traded close to the 98.37 level reached Jan. 2, when it gained the most in more than three months, after lawmakers in the U.S. avoided automatic austerity measures by agreeing to raise taxes on the wealthy and putting off decisions on spending cuts.

Canada’s currency has gained 1 percent during the past 12 months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped 3 percent.

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