Canadian Dollar in Tightest Range in Month on Economy

The Canadian dollar traded in the tightest range in almost a month against its U.S. counterpart on concern strong employment data last week may not translate into sustained economic growth.

The currency fluctuated after gaining for three days versus the greenback after reports on March 8 showed both the U.S. and Canada created more jobs than expected last month. The Canadian currency has depreciated for five straight weeks, the longest slide since June, after Bank of Canada Governor Mark Carney said in January slower-than-forecast growth would keep interest rates low.

“The U.S. economy is out-pacing some of the other large markets and the Dow has been quite impressive, so I think this U.S. dollar story will continue and I think the Canadian dollar still has room to weaken off,” said Blake Jespersen, managing director of foreign exchange at Bank of Montreal by phone from Toronto. “We still prefer to buy dollar/Canada on dips and expect the commodity currencies to weaken off more than they have.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0257 per U.S. dollar at 5 p.m. in Toronto. The currency traded between C$1.0249 and C$1.0284, the tightest range since Feb. 14. One loonie buys 97.49 U.S. cents.

Canada’s 10-year government bonds rose, with yields falling three basis points, or 0.03 percentage point, to 1.91 percent. The 2.75 percent security maturing in June 2022 gained 30 cents to C$107.10.

El-Erian’s View

Futures on crude oil, the country’s largest export, rose 0.6 percent to $92.61 after touching $93.47, the highest level in almost two weeks. The Dow Jones Industrial Average fell 0.2 percent to 14,450.06 after rising to an all-time high of 14,478.80.

A report on March 14 is forecast to show Canadian home prices increased at a slower pace in January, growing 0.1 percent from 0.2 percent the month before, according to the median estimate of a Bloomberg survey of eight economists.

“There is concern out there -- we think it’s exaggerated - - about your housing market in terms of you may get a housing crash,” Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., said on Canada’s Business News Network. “We don’t think that is the case. We also don’t think the Bank of Canada will be forced to cut rates. So, at some point, the currency will become attractive for us.”

Options Traders

Housing starts fell to their lowest point since the end of the 2009 recession in January before beating expectations with a 180,719 increase last month, the Canada Mortgage & Housing Corporation said March 8. That’s more than the 175,000 increase forecast in the median estimate of a Bloomberg survey of economists.

Canada created 50,700 jobs last month, more than double the highest prediction in a Bloomberg News survey, while employment in the U.S. increased 236,000 last month compared to the 165,000 median forecast. Unemployment rates in both nations are at four-year lows.

Options traders were the least bearish on the loonie in more than three weeks as so called risk-reversals show traders were paying 1.14 percent for protection against loonie weakness, the least since Feb 18.

“The loonie is likely to face a competitive disadvantage vs the USD over the near and medium term as the U.S. economy should out-pace the Canadian economy over the next 12 to 18 months,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York said by e-mail. “Indeed, most of the “dollar” currencies (Aussie, Kiwi and Loonie) should under-perform given their commodity centric economies during a period of uneven, albeit it, improving global growth theme.”

The loonie has fallen 0.8 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. Only the yen and the pound have fallen more, at 8.1 percent and 6.5 percent.

“Many people that had bought a little bit of Canadian dollars on Friday are maybe just taking a little bit of profit, they’re probably seeing the same stories I’ve seen about being bearish on the Canadian dollar,” said Jane Foley, senior currency strategist at Rabobank International by phone from London. “Perhaps they don’t want to sit on it too long, fearing the bearish factors will rise to the fore again.”

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