Bloomberg News

Canada’s Dollar Falls From 3-Month High as U.S. Confidence Sags

February 01, 2012

Jan. 31 (Bloomberg) -- Canada’s dollar fell from a three- month high versus its American counterpart after consumer confidence unexpectedly dropped in the U.S., the nation’s biggest trade partner.

The Canadian currency gained earlier as optimism Greece was close to a debt-swap deal with creditors improved the outlook for riskier assets. It weakened below parity after the confidence report and an unexpected decrease in the Institute for Supply-Management Chicago Inc.’s purchasing-manager index. The currency gained last week beyond a one-for-one basis with the U.S. dollar for the first time since Nov. 1.

“We’ve just got hit by two surprises -- U.S. consumer confidence and Chicago PMI,” said Sebastien Galy, a strategist at Societe Generale SA in London. “That’s putting a bit of a damper on the recovery in the Canadian dollar. The fact that we broke through parity so soon means we’re seeing a natural retracement.”

The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.1 percent to C$1.0026 per U.S. dollar at 5 p.m. Toronto time. Earlier it strengthened 0.5 percent and touched 99.65 Canadian cents, its strongest level since Oct. 31. The loonie gained 1.9 percent against the greenback in January, its first monthly advance since October. One Canadian dollar buys 99.74 U.S. cents.

Euro Weakens

Canada’s dollar gained 0.4 percent to C$1.3118 per euro and climbed 0.7 percent to 5.8496 Norwegian kroner. It fell against New Zealand’s dollar, the top performer today among its 16 most- traded peers, losing 1 percent to 82.86 Canadian cents.

Commodities and stocks reversed gains after the two U.S. reports. The Thomson Reuters/Jefferies CRB Index of raw materials decreased 0.5 percent after rising as much as 0.8 percent, and crude oil for March delivery fell 0.7 percent to $98.31 a barrel in New York. Raw materials generate about half of Canada’s export revenue, and crude is the nation’s biggest export. The Standard & Poor’s 500 Index fell as much as 0.5 percent after gaining 0.6 percent earlier.

The euro dropped against 13 of its 16 most-traded counterparts tracked by Bloomberg.

“We’ll continue to trade off equities and the direction of the euro,” said Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto. “As long as we hold above C$1.30 per euro, there’s a risk shorts get squeezed and the Canadian dollar should rally. We backed up a bit today on month-end rebalancing flows rather than anything fundamental.” Shorts are bets a currency will weaken.

Bonds Gain

Canadian government bonds rose, pushing yields on the benchmark 10-year note to a five-week low. The yields fell five basis points, or 0.05 percentage point, to 1.89 percent, the least since Dec. 21. The price of the 3.25 percent securities due in June 2021 increased 43 cents to C$111.60.

The loonie erased gains after the New York-based Conference Board’s index of U.S. consumer confidence dropped in January to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The ISM-Chicago’s business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth.

The Canadian currency slipped earlier from its high of the day after a report showed the nation’s economy unexpectedly shrank in November for the first time in six months on maintenance shutdowns by crude-oil producers and lower natural- gas extraction.

Drop in Output

Output declined 0.1 percent to an annualized C$1.27 trillion ($1.27 trillion) after being little changed in October, Statistics Canada said in Ottawa. Economists in a Bloomberg survey forecast the economy would grow 0.2 percent.

The data dimmed the outlook for interest-rate increases. The Bank of Canada has held its key interest rate at 1 percent since September 2010. The Federal Reserve’s benchmark has stayed at zero to 0.25 percent since December 2008.

Morgan Stanley said it bet the U.K. pound will fall against the loonie to an initial target of C$1.4900, saying sterling may underperform amid speculation the Bank of England will increase government-bond purchases next month to spur economic growth.

“Relative U.S. economic outperformance in the first quarter and the possibility of further Fed easing will place a bid under the Canadian dollar,” strategists for the New York- based firm wrote in a client note. “Moreover, near-term strength in risk appetite and commodities should support this trade.”

Canada’s dollar weakened 0.4 percent today to C$1.5801 to the pound.

Three-Month Gain

The loonie gained 2.5 percent over the past three months against nine developed-market counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar strengthened 2.4 percent, while the euro slid 3.9 percent.

The Canadian currency rose earlier after Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week.

Greek Premier Lucas Papademos told reporters he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government. European Union and International Monetary Fund officials are in Athens thrashing out budget measures that would unlock the aid needed to keep the government functioning.

Talks with EU and IMF officials on a new financing package for Greece must be completed by Feb. 5, Greek Finance Minister Evangelos Venizelos said today at a Parliament hearing. A private-sector debt swap, for which a public offer must be made by Feb. 13, can only proceed after a deal on the loan package is sealed, he said.

--Editors: Greg Storey, Kenneth Pringle

To contact the reporters on this story: Cecile Gutscher in Toronto at cgutscher@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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