Canada Dollar Snaps 3-Day Gain on Central Bank Forecast Views

The Canadian dollar snapped three days of gains on speculation the Bank of Canada will downgrade its economic forecasts after a government shutdown hampered growth in the U.S., Canada’s largest trading partner.

The currency rose earlier against the majority of its 16 most-traded peers before the U.S. releases data tomorrow that may show hiring picked up last month. The Bank of Canada will release a rate decision along with its monetary policy report Oct. 23. Senior Deputy Governor Tiff Macklem said earlier this month that the nation’s economy will expand more slowly than had been forecast. The U.S. government reopened Oct. 17 after a 16-day shutdown, which shaved 0.6 percentage point from annualized fourth-quarter growth, according to Standard & Poor’s.

“If nonfarm payrolls tomorrow come in as expected, or the revision comes in somewhat stronger, the danger would be for a dollar rally.” said Dean Popplewell, head analyst at the online currency trading firm Oanda Corp., by phone from Toronto. “If the U.S. numbers do come out stronger, Canada will actually benefit by association with the U.S. economy.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.2 percent to C$1.0304 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 97.05 U.S. cents.

The cost to insure against declines in the Canadian dollar versus its U.S. peer fell to the lowest in almost three months. The three-month so-called 25-delta risk-reversal rate fell to 1.14 percent, the lowest since July 29. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Dollar Strength

“When the dollar is independently strong, it tends to pull CAD with it on the crosses,” said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada, by phone from London. “When the dollar is up against everything, it tends to be up less against Canada as CAD gets pulled along as a kind of mini-dollar.”

Canada’s benchmark 10-year government bond fell, with yields rising two basis points, or 0.02 percentage point, to 2.55 percent. The 1.5 percent security maturing in June 2023 lost 15 cents to C$91.12.

Futures of crude oil, Canada’s largest export, fell 1.7 percent to $99.10 per barrel in New York.

The Bank of Canada is projected to keep its benchmark interest rate at 1 percent, according to the median estimate of 22 economist surveyed by Bloomberg.

Nonfarm payrolls in the U.S. grew by 180,000 jobs in September, up from a 169,000 increase the previous month, according to the median estimate of a Bloomberg survey with 93 responses. The unemployment rate stayed at 7.3 percent, a separate survey shows.

Sales Report

Canadian wholesale sales rose for a second month in August on the fastest gain in motor vehicles in two years.

Sales rose 0.5 percent to C$49.8 billion ($48.4 billion), Statistics Canada said today in Ottawa, compared with the median estimate for a 0.3 percent gain in a Bloomberg survey with 11 responses.

“Canada is faced with different headwinds because we’re obviously very tied into the U.S., but we haven’t participated in the same types of rallies as euro and sterling have,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. “We’re looking at the outlook for nonfarm and I think it’s just giving back a little bit.”

The loonie is among the three worst performing developed nation currencies this month with a 0.8 percent decline against nine peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar has also fallen 0.8 percent while the Swedish krona’s 1.3 percent decline is the biggest drop.

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