Canadian Dollar at Almost Two-Year Low as Business Outlook Dims

The Canadian dollar traded at an almost two-year low after the nation’s central bank released a survey showing Canadian business optimism about sales and investment faded in the second quarter.

The currency fell versus the majority of its most-traded peers after a report showing the value of municipal permits rose 4.5 percent in May to C$7.32 billion ($6.93 billion), less than the revised 11.2 percent rise the month before, Statistics Canada said in Ottawa. The balance of opinion for sales growth during the next 12 months fell to 9 percentage points from 24 percentage points in the Bank of Canada’s survey of about 100 executives.

“Numbers in Canada have been a wee bit softer than expected,” said Dean Popplewell, head analyst in Toronto at the online currency trading firm Oanda Corp., by phone from Toronto. “Headlines out of Canada are just not very reassuring.”

The loonie, as the Canadian dollar is known, rose 0.2 percent to C$1.0558 per U.S. dollar at 5 p.m. in Toronto. The currency touched C$1.0609 per U.S. dollar July 5, the weakest since October 2011. One loonie buys 94.72 U.S. cents.

Futures Positions

Hedge funds and other large speculators increased their bets last week the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 16,250 on July 2, compared with net shorts of 10,638 a week earlier.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart was at 8.46 percent, compared with 8.87 percent reached June 24, the highest level in a year. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Canada’s 10-year benchmark government bonds rose, with yields falling seven basis points, or 0.07 percentage point, to 2.47 percent from 2.55 percent July 5, a two-year high. The 1.5 percent security maturing in June 2023 added 62 cents to C$91.50.

The Bank of Canada will auction C$3.4 billion ($3.2 billion) of five-year notes with a coupon of 1.25 percent on July 10.

Futures on crude oil, the nation’s largest export, lost 0.2 percent to C$102.97 per barrel in New York and the Standard & Poor’s 500 Index of U.S. stocks gained 0.5 percent.

Housing Sector

Canadian building permits’ surprise increase in May was the fifth straight month of gains, the longest stretch in almost a decade, led by a jump in multiple-unit housing work in Toronto that has sparked warnings from policy makers about overbuilding. The value of municipal permits rose 4.5 percent to C$7.32 billion, following a revised 11.2 percent rise in April, Statistics Canada said today in Ottawa.

“The data itself is more of a reassurance of the theme of a soft landing that we expect to see in the housing market,” said Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, by phone from Toronto.

Bank of Canada officials have said there are signs of a “constructive evolution” in household finances after a surge in home starts and re-sales fueled by rising consumer debt. About one in 10 Canadians households are highly indebted, with borrowings exceeding 250 percent of gross income, the central bank said last month.

“It’s pointing to the fact the data in the second quarter is going to be consistent with a much slower pace of activity than the first quarter,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “We’ve got uneven growth, we’ve got commodity prices under pressure, and an element of uncertainty and volatility. It’s not surprising the outlook looks less robust.”

The Canadian dollar has risen 0.3 percent this year among nine developed nations currencies tracked by the Bloomberg Correlation-Weighted Index. The yen has led decliners with a 9.2 percent drop and the U.S. dollar had biggest increase at 7.5 percent.

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