The Canadian dollar fell against its U.S. counterpart for a seventh day as investors’ risk appetite declined and concern increased that the nation’s economic growth is slowing more than forecast.
The dollar weakened against the majority of its most-traded peers before a report March 1 forecast to show Canada’s economy contracted 0.2 percent in December versus 0.3 percent growth the month before, according to a Bloomberg survey of 20 economists. Global risk aversion increased as polls indicated Italy may be left with a hung parliament, potentially jeopardizing austerity measures put in place in the euro area’s third-largest economy, driving investors to the U.S. dollar as a refuge.
“Tier-two currencies are being bounced about on the back of what’s happening in Europe,” Dean Popplewell, a currency analyst at Oanda Corp., said by phone from Toronto. “Investors are leaning toward more risk-off, until they get a clear idea of what’s going on in Italy.”
The Canadian dollar, known as the loonie for the image of the aquatic bird on the C$1 coin, fell 0.5 percent to C$1.0262 per U.S. dollar at 5 p.m. in Toronto after dropping to C$1.0278, the lowest level since June 29. One Canadian dollar buys 97.45 U.S. cents.
Futures of crude oil, the country’s largest export, fell 1.1 percent to $92.11 per barrel, while the Standard & Poor’s GSCI Index of 24 raw materials gained 0.1 percent.
Standard & Poor’s 500 Index of U.S. stocks fell 1.8 percent. The 120-day correlation coefficient between the loonie and the S&P 500 reached 0.48, the lowest since Oct. 30, 2008. A reading of one would indicate they’re moving in lockstep.
Canada’s benchmark 10-year government bonds rose, pushing yields down eight basis points, or 0.08 percentage point, to 1.86 percent. The 2.75 percent security maturing in June 2022 rose 69 cents to C$107.52.
“Italy’s election not going the way the market had hoped has investors worrying anew about Europe’s debt crisis,” Joe Manimbo, a market analyst at Western Union Business Solutions, wrote in an e-mail. “Investors are ditching a broad class of risky assets for safety in the U.S.”
Italian two-year yields reversed the biggest slide in six weeks as partial results of the country’s election suggested former Prime Minister Silvio Berlusconi may have built a blocking minority in the Senate to deny outright victory to Pier Luigi Bersani. Stefano Fassina, an aide to Bersani, said the nation may need a second election.
Retail sales in Canada slid 2.1 percent in December to C$38.6 billion, the biggest 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 last week. The gauge increased 0.8 percent in December.
“It is fairly rare to see so many days in a row of one directional trend in anything really,” said Greg T. Moore, currency strategist at Toronto-Dominion Bank (TD), by phone from Toronto. “Without any real catalyst it’s kind of hard to argue for anything other than just going with the trend here.”
Policy makers have held the benchmark interest rate at 1 percent since September 2010 to support the economy. Bank of Canada Governor Mark Carney said in his January monetary policy report 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.
Carney reiterated that the need for stimulus withdrawal is less imminent after a speech today in London, Ontario.
The loonie may be due to strengthen, a technical measure indicated. Its 14-day relative-strength index against the U.S. dollar fell to 21 yesterday, its fourth 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.
Canada’s economy will decline 0.2 percent in December and grow at an annualized rate of 0.6 percent, according to a Bloomberg News survey of 29 economists. Statistics Canada will release the data on March 1.
Canada’s dollar has fallen 1.3 percent this year among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has risen 2.4 percent, and the yen has tumbled 3.9 percent.
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