Bloomberg News

Canadian Dollar Declines on Slowing U.S. Economic Data

May 03, 2012

Canada’s dollar declined for a second day against its U.S. counterpart as weaker-than-forecast U.S. economic data pointed to diminished demand from the nation’s biggest export market.

The Canadian currency erased earlier gains against the greenback after the Institute for Supply Management’s index of non-manufacturing industries decreased, casting doubt about the durability of the U.S. recovery. The U.S., which consumes 75 percent of Canada’s exports, will report April employment data tomorrow.

“There’s a little bit of risk aversion after that number - - it wasn’t great -- and markets are awfully nervous ahead of tomorrow’s payrolls,” said Steve Butler, managing director in Toronto at Bank of Nova Scotia (BNS)’s Scotia Capital unit. “Canada was a bit of a miracle child overnight. The fact that we gave up all those gains will be disappointing for the bulls.”

Canada’s currency, nicknamed the loonie, fell 0.2 percent to 98.85 cents per U.S. dollar at 5:02 p.m. in Toronto. One Canadian dollar buys $1.0116.

Government bonds rose, pushing the 10-year yield down two basis points, or 0.02 percentage point, to 2 percent. The price of the 3.25 percent bonds due in June 2021 added 18 cents to C$110.36.

Economic Differences

The loonie reached highest level in more than a month versus the euro earlier on speculation North America economic growth will outpace other developed countries. European Central Bank President Mario Draghi said policy makers see “downside risks” to the region’s economic outlook after a policy meeting today.

The ECB kept its benchmark interest rate at a record low 1 percent, matching the forecast of all 58 economists surveyed by Bloomberg News.

Bank of Canada Governor Mark Carney said April 17 rate increases would be “appropriate” in light of stronger growth. That contrasts with the Reserve Bank of Australia, which this week cut interest rates by the most in three years, lowering the overnight cash-rate target by half a percentage point to 3.75 percent.

The loonie was up versus Australian and New Zealand peers.

“The Bank of Canada is talking about removing stimulus -- that puts us in a different space,” Butler said. “We shouldn’t be surprised to see Canada is a bit of an outperformer.”

Canada’s dollar is up 1.4 percent this year for the third- best performance among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes.

The loonie, which traded as low as C$1.0319 in January, will weaken to parity with its U.S. counterpart by the end of June before strengthening to 98 cents at year-end, according to the median of 40 forecasts compiled by Bloomberg.

U.S. employers added 160,000 jobs last month, after hiring 120,000 in March, according to a Bloomberg survey before tomorrow’s nonfarm payrolls report from the Labor Department.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.net

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


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