BLBG:Canada Dollar Falls as Bets on Slowdown in China Crimp Risk Bid
Canada’s dollar depreciated from almost a six-month high versus its U.S. counterpart as speculation China’s economy is slowing sapped demand for higher- yielding assets.
The currency dropped against the greenback, which rose against the majority of its most-traded peers on demand for the safest of assets. U.S. equities declined and crude oil fell as Canadian benchmark government bonds gained for the first time in six days.
“Most of the movement has been Chinese-growth dominated,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “The Canadian dollar has been lackluster -- it still has a good chance to test short-term highs around 99.75 cents per U.S. dollar.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, weakened 0.5 percent to 99.15 cents per U.S. dollar at 5 p.m. in Toronto. It fell more than 1 percent earlier, the most since Dec. 12. One Canadian dollar buys $1.0085. The currency touched 98.42 cents on March 1, the strongest level since September.
The loonie weakened against the euro and the Swiss franc after BHP Billiton Ltd. (BHP) said China’s steel production is slowing. BHP, whose biggest customer is China, is re-evaluating spending plans amid slowing Chinese growth, the Australian Financial Review reported today, citing comments by Chairman Jacques Nasser to investors.
‘Risk-Off Sentiment’
The Standard & Poor’s 500 Index lost 0.3 percent and crude oil, Canada’s largest export, fell 2.3 percent. The Canadian dollar has a correlation coefficient of 0.86 with the U.S. equity index. A reading of 1 would indicate the two move in lockstep.
“There is a little bit of risk-off sentiment, as equity markets have been weaker,” said Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal. (BMO) “With oil off as well, commodity currencies like the Canadian dollar have been trading off the back foot.”
The rise in government bonds pushed benchmark 10-year yields down one basis point, or 0.01 percentage point, to 2.28 percent. They rose yesterday to 2.30 percent, the highest since Oct. 31.
The yield curve, the difference between two- and 10-year notes, widened to 99 basis points after touching 83 basis points on March 12, the lowest in more than three years. A narrowing yield curve indicates investors anticipate slow economic growth and inflation.
Bond Auction
“Bonds are better and currencies are taking their cues from risk appetite rather than yields,” Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit, said in a telephone interview. “That’s inevitably negative for the Canadian dollar, versus the U.S. dollar at least.”
Canada will auction C$1.4 billion ($1.4 billion) of 30-year bonds tomorrow, according to a statement on the central bank’s website. The 3.5 percent securities are due to mature in December 2045.
Implied volatility for one-month options on the Canadian dollar versus the greenback rose to 7 percent, snapping a three- day drop. It touched as low as 6.75 yesterday, the least since June 2007. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings. It averaged 9.97 percent during the past year.
The loonie fell 0.9 percent in the past week against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar lost 1 percent, while the euro added 0.6 percent.
To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
