Bloomberg News

Canada’s Dollar Touches 1-Year Low on Economic Growth Concern

September 30, 2011

Sept. 30 (Bloomberg) -- Canada’s dollar depreciated for a third day versus its U.S. counterpart, touching the lowest in more than a year, on concern a slowdown in the global economy will crimp exports and weaken the nation’s balance sheet.

The currency recorded weekly, monthly and quarterly losses even after a report showed Canada’s gross domestic product rose for a second month in July on gains in manufacturing and wholesaling. Canada’s dollar trimmed losses as traders cashed in long greenback positions, according to John Curran at CanadianForex Ltd.

“The U.S. dollar is up quite strongly over the past two weeks and sellers are taking advantage of the overbought signals,” said Curran, senior vice president at the online foreign-exchange dealer, by phone from Toronto. “People are ringing the till if they went long U.S. dollars earlier in the week and shorting it on a technical basis.” A long position is a bet that an asset will rise in value.

The Canadian currency dropped 1.4 percent to C$1.0503 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0359 yesterday. It touched C$1.0504, the weakest level since Sept. 8, 2010. One Canadian dollar buys 95.21 U.S. cents.

Canada’s currency posted a 2.2 percent drop this week versus the greenback among the world’s 16 most-traded currencies. It was down 7.4 percent this month and 9 percent for the quarter.

Dollar Balance

Curran said the Canadian dollar could weaken to C$1.0500 to C$1.0550, “but I’m leery of any further U.S. dollar gains unless there’s a total collapse of Europe. I would sell U.S. dollars up here for a test of C$1.0225.”

Investors sold the Canadian dollar for U.S. currency in monthly rebalancing of portfolios that have lost value due to equity declines, according to Steve Butler of Scotia Capital.

“It’s been a rough month and quarter for the markets,” said Butler, managing director of foreign-exchange trading in Toronto at the Bank of Nova Scotia unit, in an e-mail message. “A lot of portfolio rebalancing is hurting the Canadian dollar.”

Crude oil, Canada’s largest export, headed for its largest quarterly decline in New York since the 2008 financial crisis, 15 percent as signs of slowing growth in China, the U.S. and Germany heightened concern that fuel demand will suffer. Crude for November delivery on the New York Mercantile Exchange fell 4.3 percent to $78.64 a barrel.

The Standard & Poor’s 500 Index retreated 2.5 percent, extending the biggest quarterly drop since 2008.

Market Worries

“The U.S. dollar benefits and the Canadian dollar suffers from the twin drags of ongoing worries about global growth and weakness in equity markets,” Shaun Osborne and Greg Moore, foreign-exchange strategists at Toronto-Dominion Bank in Toronto, wrote in a client note today.

The greenback’s rally “puts C$1.0800 to C$1.0850 on the radar,” the strategists wrote. “We look for intraday support at C$1.0400 to C$1.0410.” Support refers to the lower boundary of a trading range where buyers may emerge.

Scotia Capital’s Butler said his target for the currency is C$1.0640 to C$1.0650. He recommended exiting long positions if the pair falls back below C$1.0320. A long position is a bet that a currency will appreciate, in this case the U.S. dollar.

Government bonds rose, pushing the 10-year note’s yield lower by seven basis points, or 0.07 percentage point, to 2.15 percent. Yields increased for five straight days after dropping to a record low 1.994 percent on Sept. 23. The price of the 3.25 percent security maturing in June 2021 gained 59 cents to C$109.53.

Bond Returns

Canada’s government bonds have made 7.5 percent this year, according to a Bank of America Merrill Lynch index.

Canada’s dollar remained lower even after the government’s statistics agency reported gross domestic product rose 0.3 percent to C$1.26 trillion ($1.21 trillion) in July on a seasonally adjusted basis, matching the median estimate in a Bloomberg survey with 23 responses.

The first monthly report on output for the third quarter suggests the economy has resumed growth after shrinking in the April-to-June period. Economists surveyed by Bloomberg last month predict a third-quarter annualized growth rate of 2 percent, averting a recession.

--Editor: Paul Cox, Dennis Fitzgerald

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net

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


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