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Canada’s dollar weakened versus the yen on speculation Europe’s sovereign-debt crisis may be worsening, making currencies of countries that export raw materials less attractive.
The currency fell to the lowest since February against the Japanese currency on demand for safety as Spain’s bond yields touched the highest this year. The loonie, as the Canadian dollar is nicknamed, was little changed against its U.S. counterpart as economists predicted Bank of Canada Governor Mark Carney will hold rates steady at 1 percent with the decision due at 9 a.m. tomorrow.
“I prefer buying the U.S. dollar on dips and short-term I think the Canada should underperform,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., in a telephone interview. “The market is basically waiting for Carney.”
Canada’s currency was little changed at 99.94 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0006. It dropped as much as 1 percent to 80.18 yen, the weakest since Feb. 27.
The Standard & Poor’s 500 fell 0.1 percent after rising as much as 0.7 percent and dropping as much as 0.4 percent.
The loonie may strengthen to 98 cents versus the U.S. dollar during the next three months as traders anticipate Carney is considering bringing forward the time frame for interest-rate increases, Shahab Jalinoos, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a note to clients today.
“The primary driver of the short-term call is the possibility that the Bank of Canada becomes more hawkish,” Jalinoos said in a telephone interview. “What you might find is a statement that hints that conditions are good enough now to warrant further removal of extraordinarily easy policy. That’s enough to cause a move in the market.”
Jalinoos predicted the loonie will weaken during a longer time frame against the U.S. dollar as the nation’s exports suffer from close ties to the sluggish U.S. economy rather than the faster-growing Asian economies, and as prices for some raw materials such as natural gas remain subdued and the country’s current account deficit widens. The strategist forecast the Canadian dollar will fall to C$1.05 in 12 months.
Carney’s key policy rate will likely remain at 1 percent, according to all 25 forecasts in the Bloomberg survey. The rate has been at that level since September 2010 in the longest pause since the 1950s.
The accompanying statement may say the economy will reach full output sooner than the bank forecast earlier, indicating a quicker timetable for interest-rate increases and putting upward pressure on near-term yields.
The difference between two-year and 10-year Canadian government-bond yields was 79 basis points today, less than the 82 basis points in Japan, 171 in the U.S. and 241 in France. Canada’s yield-curve, the flattest among Group of Seven countries, was 154 basis points a year ago.
Canadian government bonds fell, pushing the yield on the benchmark 10-year bonds three basis points higher to 2.01 percent. It touched a record low 1.837 percent on Dec. 16. The price of the 3.25 percent bonds due June 2021 fell 23 cents to C$110.31.
Foreign investors purchased C$12.5 billion ($12.5 billion) of Canadian securities more than they sold in February, including a net C$13.7 billion of bonds, the highest total since May 2010, Statistics Canada said today in Ottawa. Non-residents also bought C$442 million of stocks while divesting of C$1.68 billion of money-market paper, the agency said.
Canada’s currency has rallied 2.2 percent this year versus the greenback on speculation its exports will benefit from an accelerating U.S. economy.
Retail sales in the U.S. rose 0.8 percent in March, almost three times more than forecast, Commerce Department figures showed today in Washington, showing consumers are weathering the jump in gasoline prices heading into the second quarter. The median forecast of 81 economists surveyed by Bloomberg News called for a rise of 0.3 percent.
Canada’s dollar will appreciate to 98 cents by the end of 2012, according to the median of 38 forecasts compiled by Bloomberg.
“Against the background of lingering concerns about global growth and unabated fears about the euro-zone periphery, it will be very difficult for risk-correlated currencies like the Canadian dollar to outperform safe havens like the U.S. dollar and the yen,” Valentin Marinov, head of European and G-10 currency strategy in London at Citigroup Inc., said in a telephone interview. “I’d express any constructive Canadian dollar view against the euro or other risk-correlated currencies like the Swedish krona or the Norwegian krone, given their proximity to the euro.”
The loonie dropped 0.5 percent to C$1.3133 versus the euro.
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