Canadian Currency Weakens as Commodities Decline for a Third Day

Canada’s dollar weakened versus all of its 16 most-traded counterparts except the South African rand as commodities including oil, the nation’s biggest export, dropped for a third day.

The currency traded at almost a two-week low versus the U.S. dollar amid speculation an Aug. 9 report will say Canada’s economy failed to create as many jobs in July as economists forecast after data last week showed U.S. payrolls grew less than projected. Canadian government bonds fell, pushing 10-year yields almost to a two-year high.

“We’ve lost our advantage because commodity prices are much lower, and that’s basically being reflected in the Canadian dollar,” said Aaron Fennell, a futures specialist at Bank of Nova Scotia’s Scotia McLeod unit, by phone from Toronto.

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0377 per U.S. dollar at 5 p.m. in Toronto. It reached C$1.0403 on Aug. 2, the weakest level since July 18. One Canadian dollar buys 96.37 U.S. cents.

The benchmark 10-year government bond fell, pushing the yield up three basis points, or 0.03 percentage point, to 2.52 percent. The yield climbed as much as six basis points to 2.55 percent after touching 2.60 percent on Aug. 2, the highest since August 2011. The price of the 1.5 percent security due in June 2023 lost 23 cents today to C$91.22.

Futures on crude oil decreased 0.8 percent to $105.72 a barrel in New York and touched $104.86, the least since July 31, while Standard & Poor’s GSCI index of raw materials dropped 0.7 percent. The S&P 500 Index of U.S. stocks fell 0.6 percent.

Three Months

Canada’s dollar lost 1.6 percent in the past three months versus nine developed-nation peers tracked by the Bloomberg Correlation-Weighted Index. The currencies of Australia and New Zealand, fellow commodity exporters, slid 11 percent and 5.5 percent. The greenback rose 2.1 percent.

The Canadian currency remained lower as data showed the nation’s trade deficit narrowed in June from a May total that was larger than previously estimated. The gap was C$469 million ($453 million), down from a revised C$781 million the prior month, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg forecast the deficit would be C$510 million, from a previously estimated $300 billion in May.

The nation’s economy is being weighed down by what the Bank of Canada calls the slowest export recovery since World War II, hampered by a strong currency and a lack of corporate competitiveness.

Options Premium

The cost to insure against declines in the Canadian dollar versus its U.S. peer increased to the highest in almost a month. The three-month so-called 25-delta risk-reversal rate rose to 1.45 percent, matching the most on a closing basis since July 10. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart rose to 7.2 percent, from 7.1 percent at the end of last week. It touched 6.8 percent on July 22, the lowest since May 13 on a closing basis, after reaching 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.

Economists in a Bloomberg survey estimated the government’s employment report this week will show Canada added 10,000 jobs after dropping 400 in June. The U.S. economy created 162,000 jobs in July, the Labor Department said Aug. 2, versus a projection of 185,000.

“All eyes this week are on the employment number in Canada,” said Blake Jespersen, managing director of foreign exchange at Bank of Montreal, by phone from Toronto. “Maybe markets are expecting a slightly weaker number after the disappointment in the U.S.”

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