Canada Dollar Falls First Time in Four Weeks Amid Slower GrowthJeff Marshall
Canada’s dollar dropped for the first time in four weeks as government reports showed the economy growing at slower pace than in the U.S., the nation’s largest trading partner.
The currency slid versus 12 of its 16 most-traded peers even after data yesterday showed the U.S. added fewer-than-forecast jobs last month. Benchmark Canadian government 10-year bonds fell for a second week, pushing yields to a two-year high. Payrolls in the nation began expanding again in July, a government report next week is forecast to show.
“The Canadian dollar will be wholly dependent on what happens in the United States, with growth prospects and therefore with tapering” of stimulus by the Federal Reserve, said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “Until the Fed actually indicates that it’s not going to be September, everyone is viewing it as a forgone conclusion.”
The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, weakened 1.1 percent to C$1.0392 per U.S. dollar this week in Toronto. One Canadian dollar purchases 96.23 U.S. cents.
Canada’s currency touched C$1.0246, the strongest level in six weeks, on July 31 before declining to C$1.0403 yesterday, a two-week low. It gained 1 percent over the past six months against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes, while its U.S. counterpart strengthened 5.8 percent.
Yields on 10-year Canadian-government bonds touched 2.6 percent yesterday, the highest level since August 2011, before closing at 2.49 percent. For the week, the yields rose four basis points, or 0.04 percentage point. The price of the 1.5 percent security due in June 2023 decreased 30 cents to C$91.46.
The loonie briefly erased losses yesterday against the U.S. dollar amid bets the Fed might maintain monetary stimulus after data showed American nonfarm payrolls grew by 162,000 workers in July, trailing a forecast of 185,000, even as the jobless rate fell to 7.4 percent, from 7.6 percent.
The figures followed reports this week that showed the U.S. economy expanded at an annualized rate of 1.7 percent in the second quarter, versus a forecast of 1 percent in a Bloomberg survey, while home prices rose in May by the most since 2006 and manufacturing expanded in July more than forecast.
“It’s certainly not a game changer,” Adam Button, a currency analyst in Montreal at forexlive.com, said yesterday of the U.S. payrolls report. “The other U.S. data this week were great, and if you look at it as a whole, it’s still pointing more toward a September taper than it was a week ago. Despite nonfarm payrolls, the market wants to be in U.S. dollars. The appetite to buy Canadian dollars just isn’t there.”
U.S. policy makers are discussing whether the world’s biggest economy has improved enough for them to start slowing the pace of their monthly bond purchases, which tend to devalue the greenback. The Fed buys $85 billion of Treasuries and mortgage debt each month in its quantitative-easing strategy to put downward pressure on borrowing costs.
Fed Chairman Ben S. Bernanke told Congress in July that any reduction in stimulus would depend on the economy’s performance. Half of 54 economists surveyed by Bloomberg last month said the Fed may decide at its Sept. 17-18 policy meeting to reduce the purchases to $65 billion a month.
Canada’s gross domestic product rose 0.2 percent in May from 0.1 percent the month before, the government reported July 31 in Ottawa. Economists in a Bloomberg survey had estimated 0.3 percent growth.
The nation’s economy added 10,000 jobs last month, after losing 400 in June, a Bloomberg survey forecast before a Statistics Canada report due Aug. 9. Payrolls surged by 95,000 new positions in May, the most in a decade, and rose by 12,500 in April. The unemployment rate was 7.1 percent in July, unchanged from June and May, economists projected.
The Bank of Canada last month raised its growth forecast for the nation’s economy this year to 1.8 percent, from an April prediction of 1.5 percent, while lowering the 2014 projection to 2.7 percent, from 2.8 percent. Both figures exceed Bloomberg consensus forecasts of 1.7 percent and 2.4 percent.
Futures traders decreased for a third week their bets that the Canadian dollar will decline against the U.S. currency, figures from the Washington-based Commodity Futures Trading Commission showed.
The difference in the number of wagers by hedge funds and other large speculators on a decline in Canada’s currency compared with those on a gain -- so-called net shorts -- was 11,434 on July 30, compared with net shorts of 16,758 a week earlier. This week’s total was the least in a month.
Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart ended the week at 7.1 percent after touching 6.8 percent on July 22, the lowest since May 13 on a closing basis. It reached a one-year high of 8.9 percent on June 24. Implied volatility is used to set option prices and gauge the expected pace of currency swings.
The loonie slid this week even as oil, Canada’s biggest export, and other commodities rose. Crude futures advanced 2.1 percent to $106.94 a barrel in New York, and Standard & Poor’s GSCI Index of raw materials increased 0.9 percent. The S&P 500 Index of stocks rose 1.1 percent.
Canada’s dollar rallied 2.4 percent in July against the greenback in the biggest gain since October 2011 as the price of oil gained the most since August 2012. Futures on crude rose 8.8 percent last month.