BLBG: Canada's Dollar Recovers From Three-Week Low as Equities Erase Declines
Canada’s dollar depreciated to a three-week low as investors shunned higher-yielding assets as reports in Europe and U.S. added to investor’s dimming views on the sustainability of the global economic recovery.
Canada’s currency fell 0.7 percent during five days, the worst performer among the U.S. dollar’s 16 most-traded counterparts. Reports this week showed inflation rose slower than forecast in August and retail sales unexpectedly fell in July. The loonie, as the currency is nicknamed, rallied from its weakest level as global stocks advanced.
“A dash of ‘risk off’ with the economic data out of Europe” is weighing on the Canadian dollar, David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets, said via e-mail. Recent Canadian data “suggests a very humbling start to the third quarter.”
The Canadian currency depreciated as much as 0.7 percent to C$1.0380 per U.S. dollar, the lowest level since Sept. 9, before trading down 0.3 percent to C$1.0335 at 4:17 p.m. in Toronto, compared with C$1.0308 yesterday. One Canadian dollar buys 96.76 U.S. cents.
The Standard & Poor’s 500 index fell 0.8 percent.
CIBC Forecast
The Canadian currency will weaken to 92 U.S. cents as the economy expands less than 2 percent in each of the next three quarters through March 2011, Canadian Imperial Bank of Commerce said yesterday. The economy will grow only 1.9 percent in 2011, CIBC said.
“As a result, the Bank of Canada will wait until spring before renewing a very gradualist path to normalcy in interest rates,” CIBC chief economist Avery Shenfeld wrote in the report yesterday.
Canadian central bank policy makers have raised interest rates three times since June 1 to 1 percent from a record low 0.25 percent. They next meet Oct. 19 to determine rates.
“The Bank of Canada looks more and more likely to put the tightening campaign on ice,” Watt said.
The spread between U.S. Treasuries and 2-year Canadian government bonds narrowed six basis points yesterday to 98 basis points after a report showed retail sales unexpectedly fell 0.1 percent in July, calling into question the strength of Canada’s recovery. The yield gap widened to 100 basis points today.
Bond Yields
Canada’s benchmark 10-year bond yield dropped 3 basis points to 2.83 percent today as the price of the 3.5 percent security due in June 2020 rose 27 cents to C$105.66.
The greenback rose against 11 of its 16 major counterparts, climbing the most against the Norwegian krone. Canada’s currency dropped 0.4 percent to C$1.6208 against the British pound and lost 0.4 percent to 81.60 yen.
“With the Canadian dollar left without any fundamental drivers until next week’s industrial price and July GDP data, the tone set by broad U.S. dollar movements will take precedence,” Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote in a note to clients.
The loonie extended losses after U.S. Labor Department figures showed applications for unemployment benefits unexpectedly rose last week, a sign companies remain tentative about hiring as economic growth slows.
Initial jobless claims increased by 12,000 to 465,000 in the week ended Sept. 18. The total number of people receiving unemployment insurance declined, while those getting extended payments rose.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
