Bloomberg News

Canadian Dollar Fall as Carney Says Increase Less Likely

October 24, 2012

The Canadian dollar fell against most of its major peers after Bank of Canada Governor Mark Carney said the need for higher interest rates has become “less imminent,” a day after strengthening the case for tightening monetary policy.

The loonie, as the currency is known for the aquatic bird on the C$1 coin, had gained earlier after the Bank of Canada’s quarterly monetary policy report repeated the central bank’s forecast for a gradual reduction of stimulus to prevent rising household debt from threatening the economy. Carney spoke to reporters in Ottawa after the report was released.

“Carney’s statements that a rate increase is ’less imminent’ pushed dollar Canada into unwinding,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, said in a phone interview. “We’re back and forth now trying to discount when the next rate hike is going to be.”

Canada’s currency fell 0.1 percent to 99.36 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0064. The loonie gained as much as 0.3 percent following the release of the Bank of Canada report.

Speaking to reporters in Ottawa, Carney said that over time, interest rates are more likely to go up than not. He didn’t elaborate on the timing of any moves.

The currency climbed from a more than two-month low yesterday against the greenback after Carney kept the bank’s benchmark rate at 1 percent and said that withdrawal of stimulus may become appropriate.

Household Risk

The central bank highlighted record household debt that may trigger a sudden drop in consumer spending in the world’s 11th largest economy in the policy report today.

The risk is “two-sided” because the household debt burden is already forecast to grow to new records before stabilizing by the end of 2014, and a new surge of housing investment could boost it further, the Ottawa-based Bank of Canada said today.

Government bonds were little changed with the Canadian 10- year benchmark yield falling less than one basis point to 1.85 percent. The bond ended the trading session at C$107.89. Two- year bonds advanced, with the yield on the 1 percent note falling two basis points to 1.12 percent.

A so-called doji candle formation on the daily chart yesterday implied a high level of indecision in the market and a loss of the strong upward direction that was in place, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank (TD), said in a note to clients.

“It is notable that this has happened around key retracement resistance and just ahead of the 200-day moving average,” he said.

The loonie strengthened beyond its 50- and 200-day moving averages today.

The loonie has gained 1 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The greenback has dropped 2 percent, one of the top three decliners along with the yen and euro.

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

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


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