Bloomberg News

Canadian Currency Breaks Four-Day Winning Streak as Economic Growth Slows

March 02, 2012

Canada’s dollar weakened against its U.S. counterpart for the first time in five days after data showed the nation’s economic expansion slowed.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, gained 1 percent this week, the most in a month, as crude oil has rallied. Crude is Canada’s biggest export. The currency rose today versus the majority of its most-traded peers.

“A bit disappointing; we had looked for better,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said of the growth data. “We might see the U.S. dollar pull back to the 99 cent to 99.20 cent area. But it’s probably still a sell there on the day.”

The Canadian currency depreciated 0.4 percent to 98.93 cents per U.S. dollar at 5 p.m. in Toronto, paring its weekly advance. Its four-day rally was the longest in more than a month. One Canadian dollar buys $1.0108.

Government bonds rose, pushing yields down. Canada’s benchmark 10-year note yield fell for the first time in three days, dropping four basis points, or 0.04 percentage point, to 1.96 percent. The yields declined six basis points on the week.

Gross domestic product grew at a 1.8 percent annualized pace from October to December following a revised 4.2 percent third-quarter rate, Statistics Canada said today in Ottawa, matching economist forecasts. Export growth slowed to 4.6 percent from 16 percent while imports gained 2.2 percent following a 1.5 percent decline.

‘Nice Upward Revision’

“There’s a nice upward revision to the third-quarter number to 4.2 percent, so that should temper Canadian dollar losses,” TD’s Osborne said.

The loonie advanced to 98.42 cents yesterday, its strongest intraday level since Sept. 19, as risk appetite increased on data showing the labor market improved in the U.S. and manufacturing grew in China, India and America. The U.S. is Canada’s biggest trade partner.

Brent oil surged yesterday as much as 4.7 percent to $128.40 a barrel, the highest price since July 2008. Brent for April settlement fell 1.8 percent today to $123.61 in London. Crude futures reached a 10-month high of $110.55 a barrel in New York yesterday and declined to $106.61 today.

“The rise in the price of crude oil is supportive for the Canadian dollar,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We expect modest Canadian-dollar strength against the U.S. dollar over the next one to three months.”

Oil may rise even more “in the near term,” which should add momentum to the Canadian currency’s gains, Hardman said.

Loonie Versus Euro

Canada’s dollar gained versus the euro for a third straight day as data showed German retail sales unexpectedly dropped in January. The loonie touched C$1.3028 against the 17-nation currency, the strongest in two weeks, before trading at C$1.3056, up 0.5 percent.

UBS AG recommended closing out of bets the euro will fall against the Canadian currency.

“We continue to favor further downside in euro-Canada, but will perhaps instead look to move into a different structure, given the sharp move in spot over the past three days,” Chris Walker, a currency strategist at UBS in London, wrote in a note to clients.

Growth in Canada’s economy, the world’s 10th-largest, will remain below 2 percent in the first half of this year because of global financial strains and weak demand, according to a central bank forecast. Manufacturers are struggling with a currency trading near parity with the U.S. dollar while companies such as Enbridge Inc. benefit from global demand for energy.

The Bank of Canada meets next week to determine interest rates. Policy makers have held the benchmark at 1 percent since September 2010 as concern that some European countries may face default tempers an annual inflation rate that has exceeded the central bank’s 2 percent target for 14 straight months.

To contact the reporters on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net; Austen Sherman in New York at asherman18@bloomberg.net

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


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