Canadian Dollar Falls After Flaherty Says to Expect Depreciation

The Canadian dollar fell after Finance Minister Jim Flaherty said the country’s manufacturers will be aided by a currency that the central bank governor told policy makers may weaken.

“The governor was with us recently with the provincial ministers and he indicated there might be some softening in the dollar,” Flaherty said in an interview broadcast yesterday on CTV’s “Question Period.” “But the dollar in the nineties somewhere is good for manufacturing.”

Bank of Canada Governor Stephen Poloz briefed Flaherty and the provincial finance ministers at a meeting near Ottawa Dec. 16. “The Bank doesn’t comment on confidential discussions that the Bank holds with federal and provincial finance ministers or other government officials,” spokesman Alexandre Deslongchamps said in an e-mail.

“Many central banks are playing the game of lowering their currency and now the Bank of Canada is playing that game too,” said Hendrix Vachon, a senior economist at Desjardins Securities Inc., by phone from Montreal. “The Bank of Canada may sound dovish, but we don’t expect them to lower interest rates in 2014.”

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$1.0656 per U.S. dollar at 5:00 p.m. in Toronto. One loonie buys 93.84 U.S. cents.

Market View

“While the comments are hardly a tilt at the currency in the manner of Australian and New Zealand financial officials’ verbal intervention, the comments reflect a desire to see a modest weakening in the CAD at least to help boost trade and growth,” Toronto-Dominion Bank currency analysts Greg Moore and Shaun Osborne wrote in a note to clients today, using the symbol for the currency. “We concur -— at least in terms of the direction.”

Hedge funds and other large speculators pared bets against the loonie for a second week, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain, known as net shorts, was 57,956 on Dec. 31, compared with net shorts of 58,432 the week before.

The cost to insure against declines in the loonie versus its U.S. peer fell near the lowest in nine months, with the three-month 25-delta risk-reversal rate dropping to 0.93 percent on a closing basis, near the 0.92 percent level reached Dec. 30 that was the lowest since April. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Resale home prices in the Toronto area, where there are more high rises under construction than anywhere in North America, rose 8.9 percent in December from a year earlier, to C$520,398 ($489,000), according to the Toronto Real Estate Board.

Employment Growth

To prevent a housing bubble the government is prepared to tighten rules on mortgage lending for a fifth time after previous actions helped cause the market to cool, Flaherty said yesterday.

A report Jan. 10 will show Canada created jobs for a third month in December with 14,100 new positions after adding 21,600 positions the previous month, according to a Bloomberg survey of 17 economists. The unemployment rate will be unchanged at 6.9 percent, a separate survey showed.

The currency fell as futures of crude oil, the country’s biggest export, dropped 0.3 percent to $93.67 per barrel in New York, the fifth straight trading day of losses.

“There’s an element of catch-up there, catch-up between CAD and oil,” said Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA, by phone from New York. “CAD is kind of falling to better reflect the drop in oil prices.”

The Canadian dollar has gained 0.3 percent in the past month against nine developed nations currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar has declined 1.2 percent in the same period while the U.S. dollar has added 0.4 percent.