BS: Canadian Dollar Trades Near Three-Week Low on Economic Outlook
Aug. 12 (Bloomberg) -- Canada’s dollar swung between gains and losses after touching a three-week low as commodity and stock declines and signs of a waning global economic recovery dimmed the appeal of currencies tied to growth.
The Canadian currency, nicknamed the loonie, weakened over the past two days versus the dollar after the Federal Reserve said the economic recovery is slowing in the U.S., the nation’s largest trading partner. A report showed European industrial production unexpectedly contracted in June.
“Global sentiments outside Canada are playing a much more important role in moving the loonie,” Matthew Strauss, senior currency strategist at Royal Bank of Canada, the nation’s largest lender, said by phone from Toronto. “Commodities are under pressure, oil’s falling, equity markets are trading in negative territory. Given that, it’s actually a surprise we haven’t seen the Canadian dollar moving higher.
The Canadian dollar was little changed at C$1.0458 at 11:16 a.m. in Toronto, compared with C$1.0464 yesterday, after earlier sliding to C$1.0494, the weakest level since July 22. One Canadian dollar buys 95.62 U.S. cents.
Crude oil for September delivery dropped 1.9 percent to $76.53 a barrel in New York. The commodity is Canada’s biggest export. The Standard & Poor’s 500 Index retreated 0.6 percent. The loonie tends to rise and fall with commodities and stocks as a proxy for risk appetite.
16-Month Low
The Canadian 10-year government bond’s yield was little changed at 2.98 percent after earlier falling 2 basis points, or 0.02 percentage point, to 2.96 percent, the lowest level since April 2009.
Canada’s government bonds have returned investors 5.65 percent this year, according to a Bank of America Merrill Lynch index.
Pacific Investment Management Co. founder Bill Gross said he favors Canada and Brazil over the U.S. for bond investments, according to the Globe and Mail.
Gross told the newspaper in an interview he’s “in awe” of countries such as Canada that have a low debt-to-gross-domestic- product ratio and solvent financial institutions. “North of the border” has become a “preferable destination” to what he sees in the U.S., Gross said. He’s been raising his “exposure” to Brazilian and Canadian government bonds, he said.
‘More Modest’
The Fed said in its policy statement on Aug. 10 that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” Initial jobless claims in the U.S. unexpectedly rose, increasing by 2,000 to 484,000 in the week ended Aug. 7, Labor Department figures showed today in Washington. It was the highest level since mid February.
Canada’s trade deficit unexpectedly widened to C$1.13 billion ($1.09 billion) in June, Statistics Canada reported yesterday.
“If we do see a further fallout in risk sentiment -- stock markets and, more importantly for Canada, commodity prices falling -- we could well see a test of C$1.055 followed by a move higher,” RBC’s Strauss said.
--With assistance from Sean B. Pasternak in Toronto. Editors: Greg Storey, Robert Burgess
To contact the reporter on this story: Alex Kowalski in New York at akowalski13@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
