Bloomberg News

Canadian Dollar Drops as Crude and Stocks Head for Weekly

March 23, 2012

The Canadian dollar fell against the majority of its most-traded peers as weaker-than-expected data called into question the strength of the nation’s economic growth and the timing for interest-rate increases.

The currency erased a loss versus its U.S. counterpart after stocks and crude oil rallied. Higher-yielding currencies gained against Canada’s dollar as a government report showed the annual inflation rate increased last month less than forecast. The currency touched the lowest this month against the U.S. dollar today after a retail sales report yesterday also trailed forecasts. The government hands down its budget next week.

“The bias is certainly shifting toward risk-aversion trading strategies,” Dean Popplewell, head analyst at the online currency-trading firm Oanda Corp., said by phone from Toronto. “Longer-term players are certainly very comfortable being short Canada,” he said. A short position is a bet that a currency will fall in value.

The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, rose 0.1 percent to 99.83 Canadian cents per U.S. dollar at 3:39 p.m. Toronto time. It earlier fell to C$1.0034, the least since Feb. 27. One Canadian dollar buys $1.0016.

Government bonds rose for a fourth day, the longest winning streak this month. Benchmark 10-year yields dropped two basis points, or 0.02 percentage point, to 2.18 percent, after rising to 2.297 percent on March 19, the highest since October. Two- year yields fell one basis point to 1.24 percent.

Federal bonds have lost 1.2 percent this year, according to the Bank of America Merrill Lynch data.

Oil Surge

The loonie erased losses after oil surged almost $3 a barrel as Reuters reported Iranian oil exports will drop by 300,000 barrels a day this month because of tighter sanctions. Crude for May delivery rose $1.29 to $106.87 a barrel. It slid $1.92 yesterday to $105.35, the lowest close since March 15.

The Standard & Poor’s 500 Index was headed for a 0.4 percent decline this week, the first in six weeks.

Canada’s currency was headed for its third straight weekly drop against the greenback in what would be its longest five-day losing streak since the period ended Aug. 19.

The consumer price index rose 2.6 percent in February from a year earlier, following January’s 2.5 percent gain, Statistics Canada said. The core rate, which excludes eight volatile items, rose 2.3 percent, the fastest since December 2008. Economists surveyed by Bloomberg predicted the total rate would quicken to 2.7 percent and core inflation would be 2.2 percent, according to the median of 25 estimates.

‘Consumer-Debt Load’

For the Bank of Canada, “near-term inflation numbers aren’t the most important thing,” Mark Chandler, head of fixed- income and currency strategy at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said in a telephone interview. “They’re worried more about the consumer-debt load.”

The Bank of Canada has held its target lending rate at 1 percent since September 2010 in the longest pause since the 1950s. Borrowing costs aren’t forecast to advance until the first quarter of 2013, according to economists in a Bloomberg News survey.

The yield on the September 2012 bankers’ acceptances contract, a barometer of short-term rate projections, was unchanged at 1.32 percent today, down from 1.37 on March 15, the highest level since August. The decreasing yield indicates traders are trimming expectations for rate rises.

Budget Focus

“Even though inflation is slightly higher than the Bank of Canada wants, there’s no reason to panic,” said David Love, a trader of interest-rate derivatives in Montreal at Le Groupe Jitney Inc., a brokerage. “People really only react if the data is off from consensus.”

Canadian Finance Minister Jim Flaherty said his 2012 budget, to be released March 29, will focus primarily on bolstering growth in a bid to sustain the country’s recovery, rather than government spending cuts.

Flaherty said he will include steps to encourage innovation, promote natural resources and create jobs even as he cuts spending to balance the budget in the “medium-term,” he told reporters yesterday near Ottawa.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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


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