Canada’s dollar dropped to a six- week low versus its U.S. counterpart as speculation the European debt crisis is getting worse and concern America’s recovery is slowing sapped risk demand.
The Canadian currency fell below parity as crude oil touched a level lower than $101 a barrel. The so-called loonie is down 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, falling along with its commodity- linked peers of Australia, New Zealand and Norway. Canadian 10- year bond yields dropped below 2 percent for the first time in almost a month.
“We have to remain focused on the potential for disappointment that the second quarter holds in terms of U.S. economic metrics,” said Stewart Hall, senior currency strategist in Toronto at Royal Bank of Canada’s RBC Capital Markets unit, in a telephone interview.
Canada’s currency depreciated 0.7 percent to C$1.0045 per U.S. dollar at 5 p.m. in Toronto, the weakest level since Feb. 27. One Canadian dollar buys 99.55 U.S. cents. Since mid- February, the loonie has traded in a range of 98.42 cents to C$1.0052.
The area around C$1.0050 “has been a point of significant resistance for the pair,” Hall said. Resistance refers to the upper boundary of a trading range, where sell orders may be clustered. “You get through that, and you’re talking about an area of the chart that we haven’t seen since mid- to late- January,” he said. RBC predicts the Canadian dollar will weaken to C$1.02 versus the greenback by mid-year.
Canadian 10-year government bonds rose for a second day, pushing the yields lower by as much as 11 basis points, or 0.11 percentage point, to 1.96 percent. The yields were below 2 percent for the first time since March 13. Canadian yields were about the same as U.S. counterparts after they were 10 basis points lower April 3.
Five-year swap spreads were the widest in almost two years as homeowners locked in historically low mortgage rates on bets the central bank will lift borrowing costs in the face of a strengthening housing market.
The difference between five-year interest-rate swaps -- the rate to exchange floating- for fixed-interest payments -- and the equivalent Government of Canada bond yield reached 34 basis points on April 5, the widest since May 2010. The spread was 32 basis points today.
Crude oil for May delivery decreased 1.2 percent to $100.90 a barrel in New York today. The Standard & Poor’s 500 Index tumbled 1.7 percent. The S&P/TSX Composite Index fell 0.7 percent.
“Offsetting drivers” are keeping the loonie in its 10- week range, Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, wrote in a note to clients today. He cited Canadian-dollar positive factors such as domestic employment, inflation and business confidence data, set against negative factors such as lower equities and commodities and widening sovereign bond spreads.
Several days of higher closing levels in the U.S. dollar versus the Canadian currency indicate “a move higher” for the greenback, Spitz wrote.
The Canadian currency will strengthen to 98 cents per U.S. dollar by year-end, according to the median forecast of economists in a Bloomberg News survey.
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