Canada’s dollar had the biggest weekly loss this year versus its U.S. counterpart as speculation that turmoil in Greece will worsen Europe’s debt crisis damped investor appetite for riskier assets.
The currency lost 2.1 percent this week after a U.S. factory gauge and leading indicators unexpectedly fell. It rose today for the first time this week after Statistics Canada reported higher inflation, bolstering the outlook for interest- rate increases, before erasing gains as U.S. stocks reversed advances.
“The bulk of the move lower is on risk aversion, which has been aggravated by weak U.S. data,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “Canadian data has held up reasonably well.”
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, lost 0.3 percent today to C$1.0222 per U.S. dollar at 5 p.m. in Toronto, extending the weekly decline, which was the biggest since November. It touched C$1.0227, the weakest level since Jan. 16. One Canadian dollar purchases 97.83 U.S. cents.
Implied volatility for one-month options on the Canadian dollar versus the greenback increased to the highest level since Jan. 6, 10.31 percent. It fell to 6.59 percent on April 30, the lowest since June 2007. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.
Ten-year Canadian government bonds fell for the first time in six days, pushing the yield higher by one basis point, or 0.01 percentage point, to 1.89 percent. It touched 1.873 percent yesterday, the lowest level since December. Two-year yields were little changed at 1.21 percent.
The Standard & Poor’s Index dropped 0.7 percent after gaining as much as 0.6 percent.
The loonie had its biggest intraday jump in a week today after Statistics Canada said the consumer price index rose percent in April from a year ago, compared with a 1.9 percent gain the prior month. The core inflation rate, which excludes eight volatile components, increased to 2.1 percent after a March gain of 1.9 percent. A Bloomberg News survey of economists forecast that both the total and core rates would remain unchanged at 1.9 percent.
“Inflationary concerns are potentially creating an environment for the Bank of Canada to take back some of the excess monetary stimulus,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “However, that environment is being very much driven by events outside of Canada.”
Bank Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.
Odds of a rate boost by year-end rose to 46 percent after the inflation report, from about 41 percent yesterday, according to Bloomberg calculations on trading in overnight index swaps.
The loonie posted its biggest intraday drop in a week yesterday after weaker-than-forecast economic data from the U.S., Canada’s biggest trade partner. The Federal Reserve Bank of Philadelphia’s manufacturing index was negative 5.8 this month, the lowest reading since September, from 8.5 in April. Readings less than zero indicate contraction in the region. The Conference Board’s leading-indicators gauge of the U.S. outlook for the next three to six months fell 0.1 percent in April.
The U.S. dollar rose to 73.1 today on the 14-day relative strength index against the Canadian currency, the highest level since October, from 57.5 a week ago. A reading above 70 signals an asset may be due to reverse direction.
The difference in the number of wagers by hedge funds and other large speculators on an advance by the Canadian dollar versus its U.S. counterpart compared with those on a drop -- so- called net longs -- was 51,005 in the week ended May 15, down from 60,095 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed today.
The loonie gained 1 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar strengthened 3.4 percent. Australia’s dollar tumbled 5.4 percent and Sweden’s krona dropped 2.8 percent, while the euro advanced 0.8 percent.
“The way the market has traded the Canadian dollar over the past few weeks, it makes it clear it’s being viewed as a safe haven relative to the Australian dollar, the euro, to the Scandinavian currencies,” Greg Anderson, the North American head of Group-of-10 nations currency strategy at Citigroup Inc., said by phone from New York.
Another Two Years
German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy. He spoke in a recorded interview broadcast today on France’s Europe 1 radio.
Greek political leaders began campaigning today for the June 17 election, the country’s second vote in six weeks, after a rise in support for anti-austerity parties scuttled the formation of a government.
“The big deal is Greece headlines still, and it’s probably going to be that way for the next month,” said Citigroup’s Anderson.
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