BLBG:Canadian Dollar Weakens Most in Six Month on China Data
The Canadian dollar fell the most in six months after data from China suggested demand for commodities may not increase apace with general economic growth.
The Canadian currency declined against the majority of its most-traded peers along with the Australian dollar and the South African Rand, other so-called commodity currencies, after China’s investment in fixed assets fell in December from the month before. The currency extended losses after a measure of U.S. consumer sentiment trailed forecasts. It headed for its first five-day loss in three weeks after it failed yesterday to strengthen above a key technical level and pre-set sell orders were triggered today.
“It’s the kind of thing where people were expecting the outperformance, it’s buy the rumor, sell the news,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “If you’re really looking for something, the fixed- asset investment is the component of China’s economy that really flows through to the commodities trade, and so that could be causing a bit of weakness to the Canadian dollar.”
The Canadian dollar, called the loonie for the image of the aquatic bird on the C$1 coin, fell 0.6 percent to 99.17 cents per U.S. dollar at 5 p.m. in Toronto, after weakening the most since June 28. One loonie buys $1.0084.
The Australian dollar lost 0.3 percent to $1.051, while the rand depreciated 0.9 percent to 8.8805 per U.S. dollar.
Price Swings
Implied volatility for three-month options on the U.S. dollar versus the loonie touched 5.95 percent, matching the most since Dec. 27. It touched 5.32 percent on Dec. 19, the lowest since Oct. 11, 2000. Implied volatility signals the expected pace of currency swings and is quoted and used by traders to set option prices.
The country’s benchmark 10-year bonds rose, with yields falling three basis points, or 0.03 percentage point, to 1.92 percent. The 2.75 percent security due in June 2022 added 28 cents to C$107.10.
Government reports on housing starts and unemployment claims released yesterday showing economic strength in the U.S., Canada’s biggest trading partner, failed to push the loonie through 98.26 cents per U.S. dollar that has become a key level of resistance since October, George Davis, chief technical analyst for fixed income and currency strategy at Royal Bank of Canada, wrote in a note to clients.
“If you flirt with an important technical level and you keep failing to break it, what tends to happen is you need that correction, you need it to pull back before it gathers momentum for another charge at it,” said Macquarie’s Doyle.
Economic Data
The Canadian dollar declined further after U.S. consumer confidence unexpectedly fell in January to a one-year low. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3, the lowest since December 2011, from 72.9 the prior month. The gauge was projected to rise to 75, according to the median forecast of 74 economists surveyed by Bloomberg News.
Canada’s factory sales climbed 1.7 percent to C$49.9 billion ($50.4 billion), Statistics Canada said today in Ottawa. The gain exceeded all 17 forecasts in a Bloomberg economist survey that had a median projection of a 1 percent increase.
China’s fixed-asset investment excluding rural households rose 20.6 percent for the January-to-December period compared with a 20.7 percent gain in the first 11 months of the year. The country’s overall economic growth exceeded forecasts, posting 7.9 percent growth in the fourth quarter compared with 7.8 percent predicted in a Bloomberg survey of economists.
Market Forces
“There’s no obvious story or driver of this, I think it’s just purely a stop-driven move,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto. A stop is a pre-established order to buy or sell when a specific price level is reached.
“Once it broke this 98.80 level, there’s really been a broad-based amount of interest in buying U.S. dollars and selling Canada,” said Darcy Browne, managing director of currencies at Canadian imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “There’s some natural stop-losses up there.”
Options traders became more bearish on the Canadian dollar. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded at 0.89 percentage point today, up from 0.82 percentage point yesterday. It averaged 1.5 percentage points this year.
The loonie has fallen 1.6 percent during the past six months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained 5.5 percent while the greenback has dropped 3.6 percent.
To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
