BLBG: Canadian Currency Has Biggest Weekly Loss in a Month on Outlook for Rates
Canada’s dollar had the biggest weekly loss in a month versus the greenback as investors speculated the central bank won’t raise interest rates until late next year and crude oil, the nation’s largest export, fell.
The loonie, as Canada’s currency is nicknamed, declined 0.5 percent over the past five days. Bank of Canada Governor Mark Carney held benchmark interest rates steady at 1 percent on Dec. 7 for the second straight meeting, highlighting threats to the economic recovery.
“The Bank of Canada statement this week is going to be a drag on the currency because there is just nothing out there for rate hikes in the foreseeable future,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “Minimum second quarter next year. Most people are probably looking for third quarter.”
The Canadian currency rose 0.2 percent to C$1.0091 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0106 yesterday. Earlier it fell 0.1 percent. The loonie closed at C$1.0039 on Dec. 3, when it reached C$1.0003, the strongest level since Nov. 11. One Canadian dollar buys 99.12 U.S. cents.
Government bonds dropped, pushing the benchmark Canadian 10-year note’s yield up as much as seven basis points, or 0.07 percentage point, to 3.32 percent, near the highest level since June. The 3.5 percent security maturing in June 2020 slid 45 cents to C$101.60. Two-year yields increased five basis points to 1.72 percent.
Crude Falls
Crude, which accounts for 21 percent of the Bank of Canada’s Commodity Price Index, the largest single component, dropped 1.7 percent this week on concern that moves by the People’s Bank of China to counter inflation will undercut demand for raw materials. January crude-oil futures fell 0.7 percent today to $87.72 a barrel in New York after touching $90.76 on Dec. 7, the highest level since October 2008.
The Reuters-Jefferies CRB Index of raw materials fell 0.4 percent for the day and the week. The loonie has rallied 4.4 percent this year, partly on demand for the nation’s commodities, including gold, crude oil, copper, timber and wheat, which account for about half of its export revenue.
The Canadian currency still rose versus most major counterparts today as the euro fell on speculation Europe’s sovereign-debt crisis will worsen and the greenback strengthened as U.S. consumer confidence increased more than forecast. America is Canada’s biggest trading partner.
“Oil softened, but we still think the Canadian dollar will continue to hover around here.” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto. “We have lots of interested sellers between C$1.0130 and C$1.0150 and lots of interested buyers at C$1.0050 on down to parity, but we’ve been trapped in this range.”
Parity With Greenback
The loonie last reached a one-for-one basis with the U.S. dollar during the five days beginning Nov. 5.
The Bank of Canada said in its statement this week that it will remain careful about future interest-rate increases as falling exports and Europe’s sovereign-debt crisis hinder the economic recovery.
“A combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports,” the bank said.
Policy makers will keep the key overnight lending rate at 1 percent through the first half of 2011 and raise it to 1.5 percent in the third quarter, according to the median forecast in a Bloomberg survey of 23 economists and analysts. The loonie will trade at C$1.01 per U.S. dollar at the end of the third quarter, according to a separate survey of 32 economists.
Three Increases
The central bank first kept borrowing costs unchanged in October after three successive increases of a quarter-percentage point each beginning June 1, when it became the first among the Group of Seven nations to raise interest rates since July 2008.
Canada’s trade deficit shrank to C$1.71 billion ($1.69 billion) from a revised C$2.31 billion in September on record exports of copper and precious metals, the nation’s statistics agency said. The surplus with the U.S. narrowed to the smallest since 1992. Economists surveyed by Bloomberg News predicted an October deficit of C$2.1 billion.
The People’s Bank of China increased reserve requirements by 50 basis points starting Dec. 20, the central bank said on its website today. It was the third increase in five weeks.
China’s consumer prices rose 4.7 percent in November from a year earlier, a statistics bureau report will show tomorrow, according to the median forecast in a Bloomberg News survey amid speculation the Asian nation will tighten monetary policy.
The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment rose to 74.2, a six-month high, from 71.6 last month. Economists forecast a reading of 72.5.
The euro fell today against most of its major counterparts as leaders from Germany and France said they’re against increased funding to quell the sovereign-debt crisis before next week’s summit of European Union leaders.
To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
