BLBG:Canada Dollar Heads for Biggest Weekly Loss in 2012
Canada’s dollar headed for the biggest weekly loss this year versus its U.S. counterpart as speculation that turmoil in Greece will deepen Europe’s debt crisis damped investor appetite for riskier assets.
The currency erased its first advance this week after U.S. stocks reversed gains. It had strengthened after a Statistics Canada report showing higher inflation bolstered the outlook for interest-rate increases and as American stocks advanced.
“The big deal is Greece headlines still, and it’s probably going to be that way for the next month,” Greg Anderson, the North American head of Group-of-10 nations currency strategy at Citigroup Inc., said by phone from New York.
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, headed for a 2 percent loss on the week, the biggest drop since December. It weakened 0.1 percent to C$1.0210 per U.S. dollar at 12:01 p.m. in Toronto after gaining as much as 0.6 percent earlier in an advance from C$1.0227, the weakest level since Jan. 16. One Canadian dollar buys 97.94 U.S. cents.
The nation’s 10-year government bonds fell for the first time in six days, pushing the yield higher by one basis point, or 0.01 percentage point, to 1.88 percent. It touched 1.873 percent yesterday, the lowest level since December. The price of the 2.75 percent bonds due in June 2022 fell 6 cents to C$107.93.
The Standard & Poor’s Index lost 0.3 percent after gaining as much as 0.6 percent.
Higher Inflation
The loonie had its biggest intraday jump in a week today after Statistics Canada said the consumer price index rose 2 percent in April from a year ago, compared with a 1.9 percent gain the prior month. The core inflation rate, which excludes eight volatile components, increased to 2.1 percent after a March gain of 1.9 percent. A Bloomberg News survey forecast that both the total and core rates would remain unchanged at 1.9 percent.
“Inflationary concerns are potentially creating an environment for the Bank of Canada to take back some of the excess monetary stimulus,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “However, that environment is being very much driven by events outside of Canada.”
Bank Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.
Odds Increase
Odds of a rate boost by year-end rose to 46 percent after the inflation report, from about 41 percent yesterday, according to Bloomberg calculations on trading in overnight index swaps.
The loonie posted its biggest intraday drop in a week yesterday after weaker-than-forecast economic data from the U.S., Canada’s biggest trade partner. A Philadelphia-region manufacturing gauge and the Conference Board’s leading- indicators both unexpectedly fell.
The U.S. dollar rose to 72.5 today on the 14-day relative strength index against the Canadian currency, compared with 57.5 a week ago. A reading above 70 signals an asset may be due to reverse direction.
The loonie gained 0.4 percent over the past month against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes, the fourth-best performance. The U.S. dollar was up 3.8 percent, the yen increased 7 percent and the pound added 2.1 percent. Australia’s dollar dropped 2.3 percent, and the euro was rose 0.2 percent.
Viewed as Haven
“The way the market has traded the Canadian dollar over the past few weeks, it makes it clear it’s being viewed as a safe haven relative to the Australian dollar, the euro, to the Scandinavian currencies,” said Citigroup’s Anderson.
German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy. He spoke in a recorded interview broadcast on France’s Europe 1 radio.
Greek political leaders began campaigning today for the June 17 election, the country’s second vote in six weeks, after a rise in support for anti-austerity parties scuttled the formation of a government. Greece’s credit rating was downgraded one level by Fitch Ratings late yesterday on concern the country won’t be able to muster the political support needed to sustain its membership in the euro area.
To contact the reporter on this story: Chris Fournier in Halifax at cfournier3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
