Bloomberg News

Canada Dollar Declines as Oil Tumbles on Slowing Economic Growth

September 17, 2012

The Canadian dollar declined for a second day against its U.S. counterpart as oil fell the most in almost three months and stocks slipped after signs of a slowing economy damped investor demand for higher-yielding assets.

The currency dropped as Canadian existing home sales fell the most in more than two years in August and a regional measure of U.S. manufacturing contracted more than forecast. The currency declined from almost a 13-month high as European Union finance ministers were deadlocked over efforts to quell the region’s sovereign-debt crisis. Canada’s inflation rate is expected to hold steady at 1.3 percent when the report is released on Sept. 21.

“The Canadian dollar fell from the tremendous amount of selling pressure on oil in the afternoon,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal (BMO), said in a phone interview. “There’s always been a correlation between oil and the Canadian dollar. Traders and investors are looking at the slide in oil and saying that the Canadian dollar should also be weaker.”

The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, declined 0.4 percent to 97.48 cents per U.S. dollar. The currency has gained 4.8 percent this year and touched 96.33 on Sept. 14, the strongest level since August 2011. One Canadian dollar buys $1.0259.

Canadian bonds declined, with the yield on the 10-year benchmark falling two basis points, or 0.02 percentage point, to 1.95 percent. The 2.75 security maturing in June 2022 rose 22 cents to C$107.12.

Oil Plunges

Crude-oil futures fell 2.4 percent in New York after tumbling as much as 4.4 percent, the largest intraday decline since June 21. The commodity, Canada’s biggest export, dropped more than $3 in less than a minute as October contracts were close to expiring.

The Standard & Poor’s 500 Index (SPX) dipped 0.3 percent after falling as much as 0.6 percent.

The Federal Reserve Bank of New York’s general economic index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August. The median forecast of 53 economists in a Bloomberg survey called for minus 2. Readings less than zero signal contraction in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.

The New York data “just adds more fuel to the fire that there’s a general slowdown in the manufacturing sector and more broadly in the U.S. economy,” Mazen Issa, Canada macro strategist at the securities unit of Toronto-Dominion Bank (TD) in Toronto, said in a phone interview.

Home Sales

The sale of homes fell 5.8 percent in August to 35,869, from 38,063 in July, the Canadian Real Estate Association said in a statement posted on its website. Home sales were down 8.9 percent from the same month last year. The average national price for existing homes rose 1.1 percent from July and 0.3 percent from a year earlier.

Bonds of Canadian banks, ranked the soundest for five straight years by the Geneva-based World Economic Forum, are the worst performers this year versus their global peers as slowing consumer lending cuts into profit growth.

The U.S. dollar-denominated debt of lenders including Royal Bank of Canada and Bank of Montreal has returned 4 percent, compared with an average increase of 12 percent for the Bank of America Merrill Lynch U.S. Corporates, Banks Index.

Foreigners increased their holdings of Canadian securities in July, led by purchases of government bonds. The net purchase of C$6.67 billion ($6.87 billion) in July followed the revised net sale of C$7.76 billion in June, Statistics Canada said today in Ottawa. Bond investment by foreigners rose by C$6.10 billion, led by secondary market purchases of federal and provincial bonds.

To contact the reporter on this story: Katia Dmitrieva in New York at edmitrieva1@bloomberg.net

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


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus