Canadian Dollar Trades at Four-Month Low as Crude Oil Fluctuates

The Canadian Dollar traded at almost a four-month low against its U.S. counterpart as the price of crude oil, the nation’s biggest export, fluctuated.

Futures of crude oil fell 0.6 percent to $93.56 per barrel in New York after gaining as much as 0.6 percent. The commodity fell 0.8 percent yesterday after Iran and world powers reached an interim deal to set limits on its nuclear program. The Canadian dollar has dropped 5.7 percent this year against the greenback as the Bank of Canada Governor Stephen Poloz signaled he might need to cut interest rates to boost the economy, while the U.S. Federal Reserve plans to reduce its pace of bond buying.

“You’ll see the loonie react to news of the day, but the loonie is on its down trend,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “That’s simply because the U.S. economy should outperform the Canadian economy over the next year or so.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0541 per U.S. dollar at 5:00 p.m. in Toronto. The currency touched C$1.0583 per U.S. dollar yesterday, the lowest since July 8. One loonie buys 94.87 U.S. cents.

The discount applied to the benchmark Western Canada Select crude-oil grade versus its U.S. counterpart fell to $31 a barrel, from $42 on Nov. 5.

The nation’s benchmark 10-year government bonds rose, pushing yields down three basis points, or 0.03 percentage point, to 2.52 percent. The price of the 1.5 percent securities maturing in June 2023 increased 27 cents to C$91.43.

Trading Range

Short-term technical indicators for the loonie are bearish, Rahim Madhavji, president at Knightsbridge Foreign Exchange in Toronto, wrote in a report. The U.S. dollar faces resistance at C$1.0580 and C$1.0850, while there may be support at 1.0270, C$1.0150 and C$1.0010.

Dollar-Canada “continues to be rangebound and seeks direction from global growth, commodity and relative interest-rates,” Madhavji said. “With the Bank of Canada not expected to move on interest rates anytime soon, the loonie will need support from Chinese and global growth, commodity prices and a strong domestic economy.”

Bank of Montreal is recommending provincial bonds, even with the debt on pace to register annual losses for the first time since 1999, in anticipation investors will seek higher-yielding assets as a cushion when rates rise.

The debt of Canada’s 10 provinces has lost 2.1 percent this year, compared with a gain of 1 percent for corporate securities and a loss of 1.8 percent for federal-government bonds, Bank of America Merrill Lynch indexes show.

The Canadian dollar has lost 3 percent this year against nine developed-market peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar is up 3.8 percent, while the Australian currency fell 10 percent.

Before it's here, it's on the Bloomberg Terminal.