SFC: Canada's Dollar Falls as U.S. Economy Signals Slower Growth
Aug. 3 (Bloomberg) -- Canada's dollar depreciated for the first time in four days as signs of weakening growth in the U.S., the nation's largest source of trade, point to diminished economic prospects.
The Canadian currency, nicknamed the loonie, fell versus 14 of its 16 most-traded counterparts. It retreated from the highest level in six weeks reached yesterday as reports showed U.S. factory orders and existing-home sales fell in June while consumer spending stagnated. Stocks declined.
"There's a bit of lingering uncertainty coming from Canada's biggest trading partner," David Watt, senior currency strategist at Royal Bank of Canada's RBC Capital Markets unit, said by phone from Toronto.
The loonie weakened as much as 0.4 percent to C$1.0274 before trading at C$1.0239 per U.S. dollar at 4:26 p.m. in Toronto, compared with C$1.0229 yesterday, when it reached C$1.0205, the strongest level since June 22. One Canadian dollar buys 97.67 U.S. cents.
The yen appreciated to an eight-month high against the dollar amid concern the U.S. may require additional stimulus measures to boost the economic recovery.
Canadian government bonds rose, with the yield on the two- year falling as much as five basis points to 1.418 percent, the lowest since July 7. The 2 percent security due in September 2012 rose 7 cents to C$101.17.
Bond Sale
Canada tomorrow will auction C$3.2 billion of 2.5 percent bonds maturing in September 2013, according to a statement on the Bank of Canada's website. The previous auction of three-year bonds on June 16 drew an average yield of 2.39 percent and a bid-to-cover ratio of 2.43 times, according to central bank data.
A U.S. slowdown, the threat of lower treasury yields and the possibility of more stimulus from the Federal Reserve will weigh on the Canadian growth outlook, according to Sacha Tihanyi, a currency strategist at Bank of Nova Scotia. He pointed to this week's job reports in the U.S. and in Canada as a potential catalyst for the currency market.
An index of pending home resales in the U.S. unexpectedly dropped, falling 2.6 percent from May, National Association of Realtors data showed today. Economists in a Bloomberg News survey projected a 4 percent gain. U.S. factory orders fell 1.2 percent, more than the 0.5 percent drop forecast in a Bloomberg survey, Commerce Department data showed.
Jobs Data
U.S. consumer purchases were unchanged after a 0.1 percent gain in May that was smaller than previously estimated, Commerce Department figures showed. The U.S. economy lost jobs for a second consecutive month in July, according to a Bloomberg News survey of economists before a Labor Department report Aug. 6.
Canadian employers added 12,500 jobs to payrolls last month, after a 93,200-position gain in June, according to the median of 22 estimates in a Bloomberg survey. Statistics Canada releases the data on Aug. 6.
"There's not a small chance we could have a small, even a bit negative, employment number, which would reinforce some bearishness on the Canadian crosses," Watt said. "We have to have at least a slowdown in the pace."
U.S. payrolls dropped by 60,000 in July, after a decline of 125,000 the month before, the median forecast in a separate Bloomberg survey predicts. That report is also due Aug. 6.
'Good Selling Interest'
"Any move towards C$1.0300 should find good selling interest" of the greenback versus the loonie, Jonathan Gencher, Toronto-based director of foreign-exchange sales at BMO Capital, a unit of Canada's fourth-largest bank, wrote in a note to clients. The U.S. dollar "should still find good support in the near-to-medium term ahead of C$1.0200" versus the Canadian. Support refers to the lower boundary of a trading range, where buy orders may be clustered.
The Standard & Poor's 500 Index fell 0.5 percent, while futures on crude oil, Canada's largest export, advanced 1.3 percent. The loonie tends to rise and fall with stocks and commodity prices.
--With assistance from Paul Dobson in London and Candice Zachariahs in Sydney. Editors: Paul Cox, Dave Liedtka
