Canada’s dollar weakened against all but two of its 16 most-traded peers as investors exited positions in higher-risk assets and Ontario, the nation’s largest province, predicted a reduced deficit next fiscal year.
The currency rose to the strongest level in almost a week before reversing gains as equities and commodities fluctuated. The currency extended a loss against the greenback after a report showed confidence among American consumers declined in March, spurring demand for a refuge.
“It’s been muted,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in an e-mail, referring to the Canadian dollar’s reaction to the Ontario budget. “It’s going to be a reflection of what the ratings agencies have to say.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, fell against all of its major peers except the currencies of Norway and Australia. It weakened 0.4 percent to 99.48 cents per U.S. dollar at 5 p.m. in Toronto, after rising to 99.01, the strongest level since March 21. One Canadian dollar buys $1.0048.
Government bonds rose, pushing the yield on benchmark 10- year security down seven basis points, or 0.07 percentage point, to 2.12 percent. Canadian 10-year debt ended yesterday yielding six basis points lower than equivalent-maturity U.S. bonds, from two basis points higher at the end of February.
Scrap Tax Cuts
Ontario plans to freeze public-sector wages and scrap corporate tax cuts to balance its budget by 2017-18 as it tries to close Canada’s biggest provincial shortfall.
The province’s deficit will fall to C$15.2 billion ($15.2 billion) in the fiscal year that begins April 1, down from C$15.3 billion in the current year, according to the budget released in Toronto today. Absent the measures, the gap would have ballooned to a record C$25 billion within three years.
The loonie has traded in a range of about 2 cents this month, appreciating to 98.42 cents on March 1 on speculation that the euro-zone debt crisis would fade, before dropping to C$1.0034 last week on concern that a rally in higher-risk assets had moved too far. The currency has averaged about C$1.30 since 1992, data compiled by Bloomberg show.
“The market is basically treading water,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. “The Canadian dollar has tested the weakest part of the range today as the wait for the Ontario budget has kept things on the quiet side.” The pair should trade between 98.50 and 99.50 cents per U.S. dollar, according to Osborne.
Canada’s currency rose yesterday along with global equities after Federal Reserve Chairman Ben S. Bernanke said accommodative monetary policy is still needed to reduce U.S. unemployment, boosting speculation of further monetary stimulus.
“Equity markets rallied yesterday, and we did see the Canadian dollar a little stronger, but it really hasn’t followed through much -- which has been a theme,” Blake Jespersen, director of foreign exchange at Bank of Montreal (BMO) in Toronto, said in a telephone interview. “We need some kind of catalyst to break this market out of its funk.”
The Standard & Poor’s 500 Index fell 0.3 percent and crude oil, Canada’s biggest export, rose 0.3 percent to $107.33 per barrel in New York after earlier strengthening 0.7 percent.
The loonie’s 1.4 percent gain over the past month is the second-best performance among 10 major currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The pound leads with an advance of 1.8 percent, and the greenback is third-best at 1.4 percent higher.
Against the U.S. dollar, the loonie is headed for a 2.8 percent gain this quarter. It rose 2.8 percent in the fourth quarter last year, after dropping 8.3 percent in the third.
“I don’t think there’s much reason for the Canadian dollar to be much stronger than where it is now,” said BMO’s Jespersen. “The Canadian dollar is comfortable trading right around parity.”
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