Bloomberg News

Canadian Currency Weakens as Growth in Economy Trails Forecast

November 30, 2012

Canada’s dollar fell against 12 of its 16 most-traded peers after a report showed the country’s economic growth slowed more than forecast in the third quarter.

The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, pared a monthly gain against its U.S. counterpart. The loonie fell yesterday as Canada’s current- account deficit widened to the second-largest on record. Stocks were little changed today amid concern a U.S. budget showdown may throw the nation’s biggest trade partner into recession.

“It is a miss, unquestionably,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a telephone interview. “The trend of slower growth in Canada is going to have an impact from a broad perspective, and the immediate knee-jerk reaction is to sell the currency on the back of a miss on an influential data point.”

The loonie weakened 0.2 percent to 99.44 cents per U.S. dollar at 5 p.m. in Toronto. It depreciated 0.2 percent on the week, while gaining 0.5 percent in November. One Canadian dollar purchases $1.0056.

The currency has climbed 0.8 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation- Weighted Indexes. The U.S. dollar has dropped 2.1 percent, and the yen has been the biggest loser, sliding 9.4 percent.

Bonds Rise

Canadian government bonds rose for a fifth day, the longest stretch in two months, pushing yields on benchmark 10-year debt down as much as two basis points, or 0.02 percentage point, to 1.69 percent. It was the lowest level in two weeks.

Gross domestic product expanded at an annualized 0.6 percent from July through September, the slowest in more than a year and lower than the 0.8 percent median forecast in a Bloomberg News survey of economists, Statistics Canada data showed. The agency also cut its second-quarter GDP figure to 1.7 percent, from 1.9 percent in a report.

Statistics Canada reported yesterday the nation’s current account deficit increased to C$18.9 billion ($19.1 billion) in the third quarter, from C$18.4 billion in the previous three months. The current account is the broadest measure of international trade.

The Bank of Canada is scheduled to hold a policy meeting on Dec. 4. Bank Governor Mark Carney said earlier this year tighter monetary policy “may become appropriate” as the nation’s economy moves toward full output. He said last month his inclination to raise interest rates had become “less imminent” given risk to economic growth.

Policy makers have held the country’s benchmark interest rate at 1 percent for more than two years.

Volatility Increases

Implied volatility for three-month options on the U.S. dollar versus the Canadian currency rose today from the lowest level in more than 11 years. It reached 5.68 percent after touching 5.55 percent yesterday, the least since May 2001. 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 9.97 percent.

The Standard & Poor’s 500 Index (SPX) swung between a 0.2 percent gain and a 0.3 percent loss before ending the day little changed.

U.S. lawmakers are trying to reach a budget-deficit agreement and avoid a fiscal cliff of $607 billion in automatic spending cuts and tax increases set to begin Jan. 1. The shock would cause the world’s biggest economy to contract 0.5 percent next year, according to the Congressional Budget Office.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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