Canadian Dollar Drops as GDP Signals Slowing Growth Versus U.S.Cecile Gutscher and Joseph Ciolli
The Canadian dollar fell to almost the lowest since 2011 as a slowdown in gross domestic product growth in April highlighted the nation’s diverging economic prospects from the U.S., its largest trading partner.
Output rose 0.1 percent to an annualized C$1.57 trillion ($1.50 trillion) after a 0.2 percent gain in March, Statistics Canada said in Ottawa. The currency extended a loss after comments by two U.S. Federal Reserve officials fueled bets on a tapering of asset buying. Canada’s dollar represented 1.57 percent of the $6.05 trillion in official foreign-exchange reserves in the first quarter, according to the International Monetary Fund’s first data on global holdings of the currency.
“The Canadian economy is still muddling along, trying to reach 2 percent growth,” David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, said by phone from Toronto. “There’s nothing here that signals the dollar will break out of its range.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.4 percent to C$1.0519 per U.S. dollar in Toronto after touching C$1.0553, almost the lowest since October 2011. One loonie buys 95.07 U.S. cents.
The currency declined 1.4 percent this month, 3.3 percent this quarter and 5.7 percent this year. This week it has traded in a range of C$1.0424 to C$1.0556, its weakest level in 2013. It strengthened to 98.16 cents on Jan. 11.
Crude oil dropped 0.7 percent $96.37 a barrel in New York after rising as much as 0.8 percent. The Standard & Poor’s GSCI index of 24 commodities dropped 0.8 percent. The S&P 500 Index of stocks depreciated 0.1 percent.
Canada’s benchmark 10-year government bond yields fell, with yields rising three basis points, or 0.03 percentage point, to 2.44 percent. The 1.5 percent security maturing in June 2023 lost 21 cents to C$91.81.
The GDP result matched the median forecast in a Bloomberg survey with 21 responses as it grew for a fourth month. From a year earlier, the economy grew 1.4 percent in April.
In a separate report, Statistics Canada said its index of raw-materials prices paid by manufacturers rose 0.2 percent in May from the month before. Economists in a Bloomberg survey had a median prediction of a 0.4 percent increase.
“The GDP data wasn’t very impressive, and the industrial-price data speaks to a tame inflation period,” Adrian Miller, the head of fixed-income strategy at GMP Securities LLC in New York, said in an e-mail. “So that suggests a weaker loonie.”
Canada’s economy underperformed that of the U.S. last year for the first time since 2006, a trend that’s forecast to continue for the next three years. In 2013, Canada’s growth is forecast at 1.7 percent, compared with 1.9 percent in the U.S., according to the median estimates of separate Bloomberg surveys.
The following year will see growth in Canada of 2.4 percent, versus 2.7 percent in the U.S., and in 2015 Canada will grow at a 2.75 percent pace, compared with the U.S.’s 3 percent, the surveys show.
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 weak economic data “leaves us driven by global trends and sentiment, and the general outlook for the U.S. dollar,” said HSBC’s Watt.
Fed Bank of Richmond President Jeffrey Lacker said today that more bond purchases are unwarranted because the four-year economic expansion is being limited by structural factors beyond the Fed’s control. Fed Reserve Governor Jeremy Stein said policy makers may make a decision in September about tapering monetary stimulus.
The greenback has gained versus all but one major rival since June 19, when Fed Chairman Ben S. Bernanke said the Fed could start reducing the $85 billion monthly pace of bond purchases later this year and end the purchases in the middle of 2014, assuming that the economy meets the Fed’s forecasts.
Futures traders pared their bets that the Canadian dollar will decline against the U.S. dollar to the least since Feb. 22, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 10,638 on June 25, compared with net shorts of 26,087 a week earlier.
The share of Canadian holdings in the January-March period was higher than the 1.48 percent share in the final three months of 2012, the IMF report showed. Today’s figures for the first time specified official reserves of the loonie, as well as its Australia peer, which previously had been indistinguishable in the “other currencies” category.
The U.S. dollar was 62.2 percent of allocated reserves in the January-March period, the euro was 23.7 percent and the Aussie was 1.63 percent.
The loonie is down 0.8 percent this month against nine developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The dollars of Australia and New Zealand, fellow commodities exporters, led decliners with drops of 5.1 percent and 4.2 percent. The greenback gained 0.5 percent.