Canadian Dollar Weakens Amid Commodity Decline, Growth Concern

Canada’s dollar fell for a second week against its U.S. counterpart as commodities declined and concern increased that growth is slowing in the world’s 11th-largest economy.

The currency slid versus 13 of its 16 most-traded peers as manufacturing sales fell the most since 2009. The data followed a report last week that showed an unexpected drop in jobs. Canada’s dollar traded in the tightest range in a month versus the greenback as crude oil, the nation’s biggest export, reached a three-week low. The inflation rate slipped to the lowest in more than three years, a report next week may say.

“Some of the data out of Canada has been weaker, and it’s taken a bit of the shine off of the currency,” Robert Lynch, head of currency strategy at HSBC Holdings Plc in New York, said in a telephone interview. “The recent data has created headwinds for the currency that didn’t previously exist.”

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0064 per U.S. dollar this week in Toronto. It touched C$1.0082, approaching the C$1.0100 level it reached last month, the weakest since July 27. One Canadian dollar purchases 99.36 U.S. cents.

The loonie traded between C$1 and C$1.0087, the narrowest weekly range since Jan. 11. It remained below its 200-day moving average throughout the week. The average was 99.91 Canadian cents yesterday.

Bets Reduced

Hedge funds and other large speculators decreased bets for a fourth straight week that the Canadian dollar will gain against the greenback, reducing them to the lowest since August, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on an advance in the loonie compared with those on a drop -- so-called net longs -- was 26,565 on Feb. 12, compared with 27,761 the week before.

Canada’s government bonds fell, pushing the yield on benchmark 10-year debt up six basis points, or 0.06 percentage point, to 2.01 percent. The price of the 2.75 percent security maturing in June 2022 declined 53 cents to C$106.20.

The Bank of Canada sold C$3.3 billion ($3.3 billion) of two-year notes at an average yield of 1.168 percent on Feb. 13. The one percent securities are due in May 2015. The offering drew C$8.5 billion in bids.

The central bank said it will auction C$400 million of real-return bonds on Feb. 20. The inflation-linked debt matures in 2044. At its last RRB auction on Dec. 5, the BOC sold C$700 million of 30-year bonds at a median yield of 0.3 percent.

Manufacturing Sales

The loonie weakened yesterday after factory sales in December fell more than forecast. They sank 3.1 percent to C$48 billion, from C$49.6 billion the previous month, Statistics Canada said Friday in Ottawa. The decline was larger than the most pessimistic forecast in a Bloomberg News survey of 17 economists that had a median estimate of a 0.8 percent decline.

“The data was quite a bit softer than expected, and it painted a sluggish picture of the Canadian economy for the latter part of last year,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities, said yesterday in a telephone interview from Toronto. “It reaffirms the low-for-longer outlook for interest rates.”

Employment unexpectedly fell in January for the first time in six months, decreasing by 21,900 jobs, Statistics Canada data showed on Feb. 8. Economists surveyed by Bloomberg News had projected a 5,000-job increase.

Rate Outlook

Bank of Governor Mark Carney reiterated to lawmakers this week in Ottawa that an increase in the benchmark interest rate, which has been 1 percent since 2010 to spur growth, is less urgent because inflation has been slower than forecast and will stay below the 2 percent target rate through mid-2014. The bank pared its 2013 growth forecast last month to 2 percent, from a 2.3 percent estimate in October.

The consumer price index advanced 0.7 percent in January from a year earlier, economists in a Bloomberg News survey forecast before the government reports the data on Feb. 22. It was 0.8 percent in December, the lowest since October 2009.

The Canadian dollar fell this week as Standard & Poor’s GSCI Index of 24 raw commodities declined 0.3 percent. Crude oil for March delivery touched $94.97 a barrel in New York on Feb. 11, the lowest since Jan. 23. Raw materials including oil account for almost half of Canada’s export revenue.

G-20 Meeting

The loonie weakened against the euro, losing 0.4 percent to C$1.3445, as Group-of-20 finance ministers and central bankers met in Moscow. The group will urge members to avoid devaluations and to let their exchange rates be set by markets, a G-20 official said.

“The Canadian dollar is very much on the sidelines of the broader debates which are going around markets right now, which is the currency-war theme,” Jane Foley, senior currency strategist at Rabobank International, said Feb. 12 by phone from London. “Whether or not Canada can win back some ground, that’s definitely a potential, but not until the Bank of Canada drops its more dovish tone.”

Canada’s dollar has fallen 0.9 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar rose 0.7 percent, and the euro climbed 2.1 percent.

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