Canada Dollar Falls to Four-Week Low on U.S. Shutdown

Canada’s dollar fell to a four-week low against its U.S. counterpart as a government shutdown in its largest trading partner continued and the nation’s trade deficit unexpectedly widened in August as imports rose to a record.

The currency was weaker versus all of its 16 major peers even as a report showed the nation’s housing starts last month exceeded forecasts. The International Monetary Fund cut its global economic outlook for this year and next as capital outflows further weaken emerging markets and warned that a U.S. government default could “seriously damage” the world economy.

Markets are waiting for “U.S. lawmakers to come back and make an announcement with respect to the U.S. budget impasse,” Brad Schruder a director of foreign exchange at Bank of Montreal, said by phone from Toronto. “The existing ranges have held” in dollar Canada trading.

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, declined 0.5 percent to C$1.0368 per U.S. dollar at 5 p.m. in Toronto, reaching the weakest level since Sept. 10. One Canadian dollar buys 96.45 U.S. cents.

“The main market force is the U.S. shutdown,” Alfonso Esparza, senior currency analyst in Toronto at the online currency trading firm Oanda Corp., said in a telephone interview. “Globally, the economy is growing, but slowing more than expected. Some of the emerging markets are a bit of a concern and it’s a bit of a commodity play.”

Price Swings

Currency swings as measured by the JPMorgan Global Volatility Index fell to 8.73 percent, the least since May. The measure reached a high this year of 11.96 percent on June 24.

Canada’s benchmark 10-year government bond yields were little changed at 2.56 percent. The 1.5 percent securities maturing in June 2023 lost three cents to C$90.98.

Canada plans to sell C$2.7 billion ($2.6 billion) of three-year bonds tomorrow, according to the Bank of Canada. The securities mature in February 2017.

Canada’s trade deficit widened even as exports to the U.S. that reached the highest since the end of 2011.

The August deficit increased to C$1.31 billion and July’s shortfall was raised to C$1.19 billion from an initial C$931 million, Statistics Canada said today in Ottawa. The deficit exceeded all 20 economist forecasts in a Bloomberg survey that had a median estimate of C$700 million.

Economic Data

Canada housing starts increased 5.3 percent to 193,637 units at a seasonally adjusted annual pace in September, up from 184,000 the month before, Ottawa-based Canada Mortgage & Housing Corp. said on its website. That compared with economists’ forecast of 185,000, according to the median of 21 responses to a Bloomberg News survey.

“We’ve been in a very tight range,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “Housing starts were a little stronger than expected, but they didn’t really change the overall trend. The focus is on the U.S. government shutdown and how it relates to Fed policy and growth outlook.”

The Canadian dollar has lost 2.4 percent this year against nine developed-market peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar is up 2.5 percent, while the Australian currency fell 8 percent.