Bloomberg News

Canadian Dollar Trades Near Two-Month Low on Outlook for U.S.

June 06, 2011

June 6 (Bloomberg) -- The Canadian dollar traded near a two-month low versus the greenback after weaker-than-forecast data last week on U.S. jobs and manufacturing spurred concern the recovery of Canada’s biggest trade partner is faltering.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, declined as a report showed Canadian building permits fell in April at the fastest pace in more than five years. Crude oil, Canada’s biggest export, and stocks dropped as investors sought safer assets.

“We’ll be seeing not a great deal of action until we have some more data coming out later in the week,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “The negative data in the U.S. employment figures and also some weak data in Canada show things are slowing. Both economies are seeing people moving away from high-yield, high-risk currencies.”

Canada’s currency fell for a second day, weakening 0.3 percent to 98.09 cents per U.S. dollar at 5 p.m. in Toronto. It closed at 97.78 cents on June 3, when it touched 98.52 cents, the weakest level since March 21. Earlier today it reached 98.17 cents. One Canadian dollar buys $1.0195.

Building permits dropped 21.1 percent in April to a seasonally adjusted C$5.35 billion ($5.45 billion), Statistics Canada said today. Crude oil for July delivery tumbled 1.4 percent to $98.79 a barrel in New York after slipping 0.4 percent last week, and the Standard & Poor’s 500 Index retreated 1.1 percent.

Fell Versus Peers

The loonie weakened over the past month versus all of its 16 most-traded counterparts, declining 1.4 percent against the U.S. dollar and 1.7 percent against the euro. It dropped the most today against the yen, losing 0.6 percent.

The euro touched a 15-month high today versus the loonie after European Union and International Monetary Fund officials agreed last week to pay the next installment to debt-strapped Greece under last year’s 110 billion-euro ($161 billion) bailout.

“We’ve seen a lot of trading activity in euro-Canada, and that’s going to continue as there’s a lot of unknowns with respect to the European debt situation,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto.

The Canadian dollar fell as much as 0.4 percent to C$1.4371 per euro, its weakest level since March 2010, before trading at C$1.4299, up 0.1 percent.

Ivey Index

The currency pared losses after the Ivey purchasing managers index increased more than projected in May, rising to 65.5 on a seasonally adjusted basis, according to a statement on the University of Western Ontario business school’s website. The adjusted reading in April was 57.8, and the median estimate in a Bloomberg News survey was 55.2. Readings of more than 50 signal purchasing by governments and companies advanced.

“This morning’s Ivey PMI report suggests that the recovery in Canada could be gaining momentum,” Kathy Lien, director of foreign-exchange research at online currency trader GFT Forex in New York, wrote to clients today. “The Canadian dollar appreciated very modestly after the release because worries remain about how the Canadian economy would perform in the face of slower U.S. growth.”

Finance Minister Jim Flaherty, whose Conservative Party won a majority in last month’s election, committed in today’s 2011 budget to erase the country’s deficit during the government’s mandate while fulfilling campaign promises.

Flaherty said he’ll seek to bring the federal government back into surplus by 2014 by implementing a review of government operating costs that will save up to C$4 billion annually. His budget document released today, which doesn’t account for any of the operating savings, projects a return to balance in 2015.

Bonds Fall

Canada’s government bonds pared losses. The yield on the 10-year note rose less than one basis point to 2.99 percent, after increasing earlier to 3.03 percent. It fell to 2.95 percent on June 3, the lowest since November. One basis point is 0.01 percentage point. The price of the 3.25 percent security due in June 2021 decreased 3 cents to C$102.22.

The government will sell C$1.4 billion of 30-year bonds on June 8, according to a statement on the Bank of Canada’s website. The securities mature in December 2045.

The loonie fell 2.4 percent in May versus the U.S. dollar, the first monthly drop since January and the biggest since August, amid concern a weak U.S. recovery will prompt the central bank to delay interest-rate boosts. The Bank of Canada has held its key interest rate at 1 percent since September, after raising it last year from a record low 0.25 percent.

U.S. payrolls increased by 54,000 jobs in May, less than a third of the 165,000 that economists had projected, Labor Department data showed last week. An Institute for Supply Management report on June 1 showed manufacturing in the nation grew at the slowest pace in more than a year.

‘Softens for Canada’

“As the outlook softens for the U.S., it also softens for Canada,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital unit in Toronto.

Canada ships about 75 percent of its exports to the U.S.

Employment growth in Canada slowed in May, a Statistics Canada report may show on June 10. Employers added a net 20,000 jobs after a gain of 58,300 in April, according to the median estimate in a Bloomberg survey.

“The market’s now looking to later in the week in Canada when we see our employment number,” Bank of Montreal’s Jespersen said. “The market is going to be positioning itself somewhat defensively heading into that number.”

--With assistance from Allison Bennett in New York. Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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