BLBG: Canadian Dollar Drops to Two-Week Low on Federal Reserve's Economic View
Canada’s dollar fell to a two-week low as commodities and U.S. stock-index futures dropped a day after the Federal Reserve said the recovery in the U.S., the nation’s largest source of trade, will be slower.
The currency remained lower after a report showed Canada’s trade deficit unexpectedly widened in June on falling sales of gold, energy and automobiles. The yield on the 10-year government bond dropped to the lowest level in more than a year.
“The market is still digesting the Fed announcement yesterday,” Blake Jespersen, director of foreign exchange at Bank of Montreal, said by phone from Toronto. “Today things look a little shaky again with commodities lower.”
The Canadian currency, nicknamed the loonie, depreciated 0.6 percent to C$1.0378 per U.S. dollar at 8:36 a.m. in New York, from C$1.0314 yesterday. It declined earlier to C$1.0394, the weakest level since July 27. One Canadian dollar buys 96.36 U.S. cents.
Crude oil, the nation’s largest export, dropped 1.2 percent to $79.32 a barrel in New York, and futures on the Standard & Poor’s 500 Index tumbled 1.5 percent. The loonie tends to rise and fall with commodity prices as a proxy for risk appetite.
The 10-year government bond’s yield fell 3 basis points, or 0.03 percentage point, to 3.01 percent, the lowest level since April 2009. The price of the 3.5 percent security maturing in June 2020 gained 26 cents to C$104.13.
Government Auction
The Bank of Canada will auction C$3 billion ($2.9 billion) in two-year bonds today. Results will be posted on the central bank’s Web site shortly after noon Ottawa time. Canada’s government bonds have returned investors 0.4 percent this month, according to a Bank of America Merrill Lynch index.
The Fed said in its policy statement yesterday that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
It directed the New York Fed’s trading desk to reinvest what economists estimate will be $15 billion to $20 billion a month in maturing agency and mortgage-backed securities back into U.S. Treasuries.
The central bank left the overnight interbank lending rate target in a range of zero to 0.25 percent, where it has been since December 2008.
To contact the reporter on this story: Alex Kowalski in New York at akowalski13@bloomberg.net
