Canada Dollar Falls for Second Day on Bets Economy Trailing U.S.

The Canadian dollar weakened for a second day after a report showed U.S. retail sales rose for a fourth straight month, adding to signs the nation’s economy is falling behind that of its biggest trading partner.

The currency slid after Canada said last week the economy lost 39,400 jobs in July, versus the gain of 10,000 forecast in a Bloomberg survey. The nation’s 10-year bond yields climbed to a two-year high. The U.S. dollar rallied against its major peers on bets the Federal Reserve will start slowing bond buying as soon as next month as the world’s biggest economy improves.

“The fact the U.S. consumer is holding his own does help to provide more confidence in the private-sector recovery, which would make the Fed feel they could take their foot off the accelerator,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, by phone from Toronto. “A slower pace of asset purchases by the Fed does provide U.S. dollar strength, and Canada does unfortunately get caught in the crossfire.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0343 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 96.68 U.S. cents.

The currency sank after failing yesterday for a second day to close stronger than its 100-day moving average, a momentum indicator some traders see as a potential turning point. It touched C$1.0281, compared with the C$1.0279 average.

Market ‘Wary’

“The market for the time being is a little wary about the Canadian economy, based on the job prints, and I think we’re going to end up having a higher dollar/weaker Canada in the near term,” said Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto.

The loonie will fall to C$1.05 to the U.S. dollar by year-end, according to the median forecast of 62 analysts and economists surveyed by Bloomberg.

Yields on benchmark Canadian 10-year bonds climbed as much as 10 basis points, or 0.10 percentage point, to 2.63 percent, the highest level since August 2011. The price of the 1.5 percent securities due in June 2023 slid 72 cents to C$90.36.

The Bank of Canada will sell C$2.8 billion ($2.7 billion) of 10-year bonds tomorrow. The 2.5 percent securities mature in June 2024.

Futures on crude oil, Canada’s largest export, gained 0.4 percent to $106.52 per barrel in New York. The discount Canadian producers face on their heavy crude oil versus U.S. benchmarks remained at almost the widest since May at $23 a barrel.

The Standard & Poor’s 500 Index of advanced 0.3 percent.

Fed Bets

The U.S. dollar climbed after the Commerce Department said retail sales increased 0.2 percent in July, after a revised 0.6 percent gain in June that was bigger than previously reported.

The data added to speculation the U.S. central bank will slow its quantitative-easing stimulus program amid economic growth. The Fed buys $85 billion per month of bonds to pump money into the economy and hold down borrowing costs. Central-bank asset purchases tend to devalue a currency.

Policy makers may start slowing the pace of buying at any of their next three meetings, Atlanta Fed Bank President Dennis Lockhart, who has backed the stimulus program, said today in a speech in Atlanta.

‘First Step’

“A decision to proceed -- whether it is in September, October or December -- ought to be thought of as a cautious first step,” and will depend on the data, Lockhart said.

Half of 54 economists surveyed by Bloomberg last month said the Fed may decide at its Sept. 17-18 policy meeting to reduce the pace to $65 billion a month.

The U.S. economy has added an average 192,000 jobs a month this year through July, the fastest pace since 2005, Labor Department data show.

Expectations for an end to the Fed’s asset purchases and faster growth in the American economy have helped Treasury 10-year notes maintain a yield advantage over their Canadian peers since May, increasing the attractiveness of those securities, data compiled by Bloomberg showed. The U.S. debt yielded nine basis points more than the Canadian today.

“We are confidently playing the yield differential, which is currently supporting the U.S. dollar across the board, and that has the loonie trading on the back foot,” said Dean Popplewell, head analyst at the online currency trading firm Oanda Corp., by phone from Toronto. “The U.S. dollar is appreciating right across the board.”

The Canadian dollar fell 1.9 percent in the past three months against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar declined 0.1 percent, and the Australian dollar was the biggest loser, dropping 8.8 percent.

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