Bloomberg News

Canadian Dollar Drops Past Parity After Europe Delays Greece Aid

November 08, 2012

Canada’s dollar traded below parity with its U.S. peer for the first time in a week amid concern the euro region’s sovereign-debt crisis may worsen after leaders said they will delay the decision to give Greece its next round of aid.

The Canadian currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, fell against the majority of its 16 most-traded counterparts as a report showed housing starts were less than forecast in October. Canada’s merchandise trade deficit unexpectedly narrowed in September as rising oil prices mitigated a lower export outlook.

“The headline out of Greece about delaying aid was negative, setting the euro under pressure and the Canadian dollar is just caught in the crossfire,” David Tulk, chief macro strategist at Toronto-Dominion Bank (TD)’s TD securities unit in Toronto, said in a phone interview. “For a while people treated the currency as a risk-on, risk-off currency, and the trend may be reasserting itself now with people trading cautiously.”

The Canadian dollar declined 0.4 percent to C$1.0003 per U.S. dollar at 5 p.m. in Toronto after falling yesterday the most in three weeks. The loonie last weakened below parity Nov. 1 after Hurricane Sandy closed equity markets earlier that week. One Canadian dollar buys 99.97 U.S. cents.

The Canadian currency fell below its 200-day moving average at 99.93 after previously breaching its 50- and 100-day moving averages, levels seen by some traders as turning points in the direction of a security’s price. The average, a momentum indicator, is calculated by adding closing prices for a specific number of assessment days, then dividing by that number.

Carney’s View

Bank of Canada Governor Mark Carney said he is prepared to act if his country’s economy is hurt by the failure of U.S. lawmakers to avoid the fiscal cliff of $600 billion in tax increases and spending cuts set to be implemented in 2013 unless Congress acts to lower the budget deficit.

“We will react if necessary,” Carney said in an interview with CBC television. He said he wouldn’t act “in anticipation” of an agreement not being reached.

Euro-area finance chiefs won’t make the call to release 31.5 billion euros ($40.1 billion) of aid for Greece that has been frozen since June when they meet in Brussels on Nov. 12, a European Union official said today. Ministers await a final report from the so-called troika that oversees the bailouts on Greece’s efforts to meet conditions before taking action, the official said.

Canadian housing starts were 204,107 at a seasonally adjusted annual pace last month, Ottawa-based Canada Mortgage & Housing Corp. said on its website today. Economists forecast a reading of 210,000 according to the median of 21 responses to a Bloomberg News survey.

‘Deteriorated Sharply’

Canada, which sits on the world’s third-largest pool of oil reserves, recorded an C$826 million ($829 million) trade deficit in September, down from a revised C$1.52 billion gap in August, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg had forecast a C$1.5 billion deficit, based on the median of 21 responses.

“Prices for key Canadian exports have deteriorated sharply since September, highlighting that the trade deficit is poised to widen again at the start of the fourth quarter,” David Watt, chief economist at HSBC Bank Canada in Toronto, wrote in a note to clients.

The Bank of Canada will remain “very cautious about adding to upward pressure on the Canadian dollar,” as the deficit stays elevated, he wrote, adding that the bank will “remain on the sideline” in 2013.

‘Touch Weaker’

Fewer Americans than forecast filed claims for unemployment insurance, with applications falling by 8,000 to 355,000 in the week ended Nov. 3, the Labor Department said today in Washington. One state said the loss of electricity due to Hurricane Sandy suppressed filings, while others said workers who lost their jobs as a result of the weather were starting to reapply, a Labor Department spokesman said.

“Canadian housing starts were a touch weaker than expectations and trade was ambiguous in terms of driving the market,” TD’s Tulk said. “People were likely to look through the U.S. improvement in jobless claims because of the influence of Hurricane Sandy. The market most likely looked through the data with a more neutral interpretation.”

Government bonds rose, pushing the yield on the 10-year benchmark note down three basis points, or 0.03 percentage point, to 1.72 percent. It plunged yesterday the most since Sept. 26 along with U.S. Treasuries. The 2.75 percent bond due in June 2022 gained 28 cents to C$109.09.

Raised Forecasts

Economists raised their estimates for Canadian 10-year bond yields for the first time in seven months, even as U.S. lawmakers are heading for a budget showdown that may derail global economic growth.

Yields on Canada’s benchmark bond will end the second quarter of 2013 at 2.05 percent, according to the median estimate of 20 economists surveyed by Bloomberg News from Nov. 2 to Nov. 7. That’s up from 2.02 percent in last month’s survey.

Canada’s dollar has gained 0.7 percent this year against nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The greenback has lost 1.6 percent and the yen and euro are the biggest decliners, losing 5.1 percent and 3.4 percent.

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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