Bloomberg News

Canada Dollar Falls for Fourth Day on Global Slowdown Concern

October 03, 2011

Oct. 3 (Bloomberg) -- Canada’s dollar fell for a fourth day versus its U.S. counterpart as concern that much of the world’s economy is already in recession sent crude oil to a close below $77 a barrel and U.S. stocks lower.

The currency still advanced against most of its major counterparts after a report showed manufacturing accelerated last month in the U.S., Canada’s biggest trading partner. The loonie, as the currency is nicknamed, dropped to the weakest level versus the U.S. dollar in a year on concern the global economy is veering toward another liquidity crisis.

“Call it a continuation of the trend that has been building momentum in conjunction with the bearish price action in the three biggest influences over the Canadian dollar -- equities, commodities and volatility,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.

The Canadian currency dropped 0.4 percent to C$1.0547 per U.S. dollar at 5:11 p.m. in Toronto, from C$1.0503 on Sept. 30. It touched C$1.0548, the weakest level since Sept. 3, 2010. One Canadian dollar buys 94.81 U.S. cents.

The Standard & Poor’s 500 Index fell 2.9 percent and crude oil futures dropped 3 percent to $76.40 a barrel in New York.

Speculators slashed bets on a rally in commodity prices by the most in almost three years after copper, crude oil and corn sank deeper into bear markets and reports of slowing growth reduced the chances of shortages.

Futures Bets

Money managers cut combined net-long positions across 18 U.S. futures and options by 26 percent in the week ended Sept. 27, data from the Commodity Futures Trading Commission show. Wagers on gold, silver, sugar and soybeans tumbled as the Standard & Poor’s GSCI commodities gauge fell for a fourth week, extending its quarterly drop to 12 percent. The index has retreated more than 20 percent since reaching an almost three- year high in April, the common definition of a bear market.

The loonie traded at 76 on a 14-day relative strength index against the dollar, rising above 70 for a third straight day. A reading above 70 signals that an asset may be due to reverse direction.

The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, according to the Tempe, Arizona-based group’s data. A level of 50 is the dividing line between growth and contraction. Economists forecast the measure to fall to 50.5, according to the median projection in a Bloomberg News survey.

Economic Uptick

Construction spending in the U.S. unexpectedly rebounded in August, propelled by the biggest jump in state and local government outlays in more than two years. The 1.4 percent gain reversed the revised 1.4 percent drop in July, Commerce Department figures showed today in Washington.

The Canadian dollar extended its gain against the euro as Financial Stability Board Chairman Mario Draghi, who will succeed European Central Bank President Jean-Claude Trichet next month, said a lack of confidence may be among the reasons for lenders’ “funding problems.”

The loonie added 1.2 percent to 1.3895 per euro.

Canadian Finance Minister Jim Flaherty has said the government’s fiscal projections for the current year remain consistent with forecasts even amid indications the economy has slowed. The government has benefited from higher tax revenue from personal income taxes.

Budget Outlook

The federal deficit widened in July to C$1.6 billion ($1.53 billion), from C$473 million a year earlier, according to a Sept. 30 statement from the finance department.

Flaherty released a fiscal plan in June that seeks to balance the budget by 2014 through government operating cost cuts of up to C$4 billion annually, and by closing tax loopholes. Canada projects a deficit of C$32.3 billion this year, compared with C$36.2 billion for the fiscal year that ended in March.

Government bonds advanced, sending the yield on benchmark 10-year bonds higher by nine basis points, or 0.09 percentage point, to 2.06 percent. Yields touched a record low 1.994 percent on Sept. 23. The 3.25 percent security, which rose 80 cents to C$110.33.

Traders await data releases this week to determine the extent to which the global slowdown is affecting Canada’s economy.

Jobs Report

The nation’s employers added 15,000 jobs in September after cutting 5,500 positions in August, according to the median of 23 estimates compiled by Bloomberg. That would mean employers added 16,500 jobs in the third quarter, compared with 109,000 in the second quarter and 82,800 in the first three months of the year. Statistics Canada is due to report the employment data on Oct. 7 at 7 a.m. in Ottawa.

Canada’s dollar depreciated 6.9 percent in September, the most since October 2008 as concern the global economy is sinking back into recession spurred a haven rally in the U.S. currency and dimmed the outlook for commodity prices. The currency also registered weekly and quarterly losses.

“The Canadian dollar is a little cheap at this point,” David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said in a telephone interview. “But if they don’t resolve the European Union situation quickly, things could get a lot uglier. It’s a brave person who would really want to jump in and go long the Canadian dollar at this point against the U.S. dollar.” A long is a bet an asset may gain in value.

Futures traders increased their wagers that the Canadian dollar will decline against the U.S. dollar, Commodity Futures Trading Commission figures show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so called net shorts -- was 20,550 on Sept. 27, compared with net shorts of 5,458 a week earlier.

--Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; 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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