Bloomberg News

Canadian Currency Weakens Amid Concern Economic Growth Slowing

February 23, 2013

Canada’s dollar slid versus its U.S. counterpart for a third week, the longest losing streak since October, as declines in retail sales and the inflation rate deepened concern the world’s 11th-largest economy is slowing.

The currency touched its weakest level in almost eight months amid bets the Bank of Canada will keep interest rates low. Growth in gross domestic product held at the lowest since June 2011, data next week may show. Commodities fell as risk appetite shrank amid concern lawmakers in the U.S., Canada’s biggest trade partner, will fail to head off $1.2 trillion in automatic spending cuts set to begin March 1.

“The Canadian economy, based on the data we’ve seen, is in a vulnerable spot,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said by phone from Washington. “If we see this string of downbeat data continues out of Canada, we may hear eventual talk about a rate cut from the Bank of Canada.”

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 1.5 percent to C$1.0215 per U.S. dollar this week in Toronto. It touched C$1.0256 yesterday, the weakest since June 29. One Canadian dollar buys 97.90 U.S. cents.

The loonie may be due to strengthen, a technical measure indicated. Its 14-day relative-strength index against the U.S. dollar fell to 24 yesterday, its third day below the 30 level some traders see as a sign an asset has moved too much, too fast, and may be about to reverse direction.

Sales, Inflation

The currency dropped for a sixth straight day yesterday against the greenback as Statistics Canada data showed retail sales slid 2.1 percent in December to C$38.6 billion ($37.9 billion). It was the biggest monthly decline since April 2010.

Canada’s consumer-price index rose 0.5 percent in January from a year earlier, the lowest gain since October 2009, the statistics agency reported yesterday. The gauge increased 0.8 percent in December.

“All in all, it’s two negative reports that will likely weigh on expectations of the Bank of Canada’s ability to raise rates,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said yesterday by telephone from Toronto.

Policy makers have held the benchmark interest rate at 1 percent since September 2010 to support the economy. Trading in overnight index swaps yesterday showed investors priced in six basis points of easing by the central bank by its December meeting, data compiled by Bloomberg showed. A week ago, they had priced in nine basis points of tightening.

Over Time

The central bank said in January an increase may still be needed over time. Governor Mark Carney reiterated to lawmakers last week in Ottawa a rate boost is less urgent now than previously anticipated because the weaker-than-expected economy is keeping inflation below the bank’s 2 percent target.

Canada’s gross domestic product grew 0.6 percent in the fourth quarter, matching the increase from July through September, economists in a Bloomberg survey forecast before Statistics Canada reports the data March 1. It’s the lowest level since the second quarter of 2011.

“We’re at the point where the good economic stories that were evident earlier are fading,” David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, said by phone from Toronto. “There’s a rather sharp retreat after the upswing in risk sentiment we’ve had for a while.”

Government bonds gained, pushing the yield on benchmark 10- year debt down seven basis points, or 0.07 percentage point, this week to 1.94 percent. The price of the 2.75 percent security due in June 2022 rose 63 cents to C$106.83.

Bond Auctions

The central bank auctioned C$400 million this week of inflation-indexed bonds due in November 2044, drawing a median yield of 0.615 percent. A C$700 million offering of the real- return bonds on Dec. 5 yielded 0.3 percent.

The bank will sell C$3.4 billion of five-year notes on Feb. 27. The 1.25 percent securities will mature in March 2018.

Canada’s dollar has fallen 1.2 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar rose 1.9 percent.

Futures traders decreased to the lowest level since August their bets that the Canadian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 19,379 on Feb. 19, compared with net longs of 26,565 a week earlier. They reached 68,668 Jan. 18, the most in 2013.

U.S. Cuts

The loonie fell versus most major peers as risk appetite shrank amid the looming spending cuts in the U.S. If lawmakers fail to reach an accord on them, the measures will lower GDP by 0.6 percent and cost 750,000 jobs by year-end, according to the non-partisan Congressional Budget Office. The reductions, part of a 2011 deal, were supposed to be so onerous Congress and President Barack Obama would never let them occur.

Standard & Poor’s GSCI Index of 24 raw materials dropped 2.6 percent this week. Futures on crude oil, Canada’s biggest export, slumped 2.6 percent to $93.36 a barrel in New York and touched $92.44, the lowest since Jan. 7. Raw materials account for about half of Canada’s export revenue.

To contact the reporter on this story: Taylor Tepper in New York at ttepper2@bloomberg.net

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


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