Bloomberg News

Canadian Dollar Weakens to Three-Month Low on Growth Concern

November 17, 2012

The Canadian dollar weakened to the lowest level against the greenback since August on concern that budget gridlock in the U.S. and Europe’s unresolved sovereign- debt crisis will weigh on demand for the nation’s exports.

The loonie, as the dollar is nicknamed for the image of the waterfowl on the C$1 coin, traded in the narrowest range this week since March. Statistics Canada is forecast to report on Nov. 23 that the rise in consumer prices slowed in October from the prior month, suggesting Bank of Canada Governor Mark Carney doesn’t need to emphasize raising interest rates.

“There’s already risk impairment that’s embedded in the marketplace right now, which is having an adverse effect on the Canadian dollar,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a phone interview. “Every other country is effectively going through the same scenario, so we’re not an outlier.”

The Canadian currency weakened to as low as C$1.0057 yesterday, the least since Aug. 3, and was little changed on the week at C$1.0012, after trading between C$1.0057 and 99.85 U.S. cents. One Canadian dollar buys 99.88 U.S. cents.

The loonie touched its more than three-month low as Finance Minister Jim Flaherty said he’ll delay plans to balance the budget and run larger-than-expected deficits because global turmoil risks slowing growth in the world’s 11th largest economy.

Global Outlook

The 17 nation euro-area economy slipped into a recession for the second time in four years as governments imposed tougher budget cuts and leaders struggled to contain the debt crisis that broke out in October 2009. Gross domestic product slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union’s statistics office said this week.

House Speaker John Boehner said he offered a “framework” including new revenue to reduce the U.S. budget deficit in his first face-to-face talks yesterday with President Barack Obama and top Congress leaders since the Nov. 6 election.

“The fiscal cliff has dominated the market,” Benjamin Reitzes, senior economist and vice president economic research in Toronto at BMO Capital Markets, said at a telephone interview. “This is going to persist and be a weight on risk sentiment, stocks, and the Canadian dollar. That won’t change until there’s more clarity on that front.”

The $607 billion fiscal cliff is a combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act. Lawmakers of both parties want to avoid a short-term shock to the economy while making progress on long- term deficit reduction.

International Demand

Canadian government bonds rose, with the yield on the benchmark 10-year security falling two basis points, or 0.02 percentage point, to 1.69 percent this week. The price of the 2.75 percent bond maturing in June 2022 rose 18 cents to C$109.27.

Foreign net purchases of Canadian securities almost doubled in September from the month before on government bond sales, the federal statistics agency said. Purchases totaled C$13.9 billion ($13.9 billion) in September and the estimated August purchase was increased to C$7.56 billion from an initial C$6.90 billion.

The consumer price index rose 1.2 percent in October from a year ago, according to the median forecast of 13 economists surveyed by Bloomberg. The central bank’s preferred core rate probably slowed to 1.2 percent from 1.3 percent in September, according to the survey.

Moving Averages

Carney has kept his key lending rate at 1 percent for more than two years and will probably leave it unchanged again at the Dec. 4 decision, according to a Bloomberg economist survey.

The Canadian currency weakened past its 50-day, 100- and 200-day moving averages this week for the first time since July 25. The averages, momentum indicators, are seen by some traders as a turning point in the direction of a currency’s price. They’re calculated by adding closing prices for a specific number of assessment days, then dividing by that number.

“This week the U.S. dollar-loonie cross failed to make any meaningful gains above 1.0040,” and “continues to trade within a relatively narrow range around its two-hundred day moving average,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a note to clients.

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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