Bloomberg News

Canada’s Dollar Slips From 3-Week High Amid U.S. Budget Concern

November 27, 2012

The Canadian dollar declined from the strongest level in almost three weeks against its U.S. counterpart amid concern a budget showdown in Washington will derail the economy of Canada’s biggest trade partner.

The currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, had gained earlier as Greece won easier terms on its debt and economic data in the U.S. fueled speculation America’s recovery is gaining momentum. It erased the advance amid drops in crude oil, Canada’s biggest export, and U.S. stocks as America’s approach toward a fiscal cliff damped risk appetite.

“It’s all focused on external issues, the U.S. fiscal cliff and whether the euro zone is going to defer its issues with Spain and Greece,” Greg Moore, a currency strategist at Toronto-Dominion Bank (TD) in Toronto, said in a telephone interview. “Not much is happening in Canada at the moment.”

The Canadian currency weakened 0.1 percent to 99.46 cents per U.S. dollar at 5 p.m in Toronto. It appreciated earlier to 99.06 cents, the strongest level since Nov. 7. One Canadian dollar buys $1.0054.

The nation’s government bonds climbed, pushing the yield on benchmark 10-year debt down three basis points, or 0.03 percentage point, to 1.73 percent. It was the lowest level in a week. The price of the 2.75 percent securities maturing in June 2022 increased 30 cents to C$108.94.

Bond Auction

Canada will auction $1.6 billion ($1.61 billion) tomorrow of 3.5 percent debt due in December 2045. The last offering of the maturity, a $1.4 billion sale in September, drew an average yield of 2.466 percent. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.62 percent. The average at the past five auctions was 2.53 percent.

Implied volatility for three-month options on the U.S. dollar versus the Canadian currency slid to the lowest level since May 2001, 5.55 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings. The average over the past decade is 9.98 percent.

“The market is sitting back in wait-and-see mode,” Steve Butler, managing director in Toronto at Bank of Nova Scotia (BNS)’s Scotiabank unit, said in a telephone interview. “It’s been very orderly trading -- almost too orderly.”

Crude oil for January delivery fell 0.5 percent to $87.34 a barrel in New York after rising 0.6 percent earlier. The Standard & Poor’s 500 Index ended the day down 0.5 percent after gaining as much as 0.2 percent.

‘Little Progress’

U.S. Senate Majority Leader Harry Reid said Democrats and Republicans have made “little progress” in negotiations on how to cut the U.S. budget deficit by year-end. If the two sides can’t reach agreement, $607 billion in automatic spending cuts and tax increases starting Jan. 1 will cause the world’s biggest economy to contract 0.5 percent next year, according to the Congressional Budget Office.

Lawmakers need to “get away from the happy talk” and start discussing specifics, Reid, a Nevada Democrat, told reporters in Washington today.

“There was a glimmer of hope that the two sides might come together, but we all know politicians and that there won’t be a solution until the 11th hour,” Scotiabank’s Butler said. “The Canadian dollar would be one of the first currencies to get hit by selling if we do fall off the cliff.”

Greece Agreement

The loonie gained earlier as risk appetite increased after European finance ministers cut the rates on Greek bailout loans, suspended interest payments for a decade, gave the nation more time to repay and engineered a bond buyback. Europe’s debt crisis began in Greece three years ago.

The agreement was reached as European officials grappled with swelling financing needs in Cyprus and a potential aid request by Spain, the fourth-largest euro economy.

In the U.S., consumer confidence climbed, home prices rose in the year ended in September by the most since 2010 and demand for American capital goods unexpectedly increased.

The S&P/Case-Shiller index of property values in 20 U.S. cities climbed 3 percent from September 2011, after advancing 2 percent in the year to August, the group said today in New York.

Demand for U.S. goods such as machinery and electronics climbed in October by the most in five months. Bookings for non- defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7 percent last month, the most since May, the Commerce Department reported today in Washington.

The Conference Board’s U.S. confidence index increased to 73.7 this month, the highest level since February 2008, from a revised 73.1 reading the prior month, figures from the New York- based private research group showed.

To contact the reporter on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net

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


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