The Canadian dollar fell as its U.S. peer gained versus most other currencies after Federal Reserve Chairman Ben S. Bernanke said risks to the economy have decreased and policy makers could end bond purchases in the middle of next year.
The Canadian currency rose earlier as Bank of Canada Governor Stephen Poloz said in his first public speech that the nation will need a rebound in business confidence to drive growth in coming years, a process that will require “stability and patience.” It extended the advance after Canadian wholesale sales rose for a fourth month in April, the longest streak of gains in a year.
“The loonie is weakening mainly because of Fed forecasts that show an improvement in the unemployment rate, which could imply higher rates in the U.S. sooner than mid-2015,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said by e-mail. “That has created U.S. dollar strength.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.6 percent to C$1.0273 per U.S. dollar at 5 p.m. in Toronto after gaining as much as 0.4 percent. It touched C$1.0287, the weakest level since June 7. One loonie buys 97.34 U.S. cents.
Futures on crude oil, Canada’s largest export, fell 0.5 percent to $97.93 a barrel in New York and the Standard & Poor’s GSCI index of 24 commodities gained 0.5 percent. The S&P 500 Index of stocks declined 1.4 percent.
Ten-year benchmark bond yields surged nine basis points, or 0.09 percentage point, to 2.25 percent. The 1.5 percent security maturing in June 2023 fell 78 cents to C$93.36.
The Fed may “moderate” its pace of bond purchases later this year and may end them around mid-2014, Bernanke said at a press conference in Washington.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said. “And if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
Bernanke is expanding the Fed’s balance sheet toward $4 trillion as he seeks to reduce a jobless rate that stands at 7.6 percent after four years of economic growth. The Fed left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
A pick-up in foreign demand for Canada’s exports, particularly in the U.S., is critical to bolstering confidence, Poloz said in a speech to the Oakville, Ontario, Chamber of Commerce. The Bank of Canada can help by keeping inflation “predictable, stable and on target” and providing information about the economy and the central bank’s “monetary policy response.”
“This sequence may already by under way,” Poloz said. “Right now, what we need most is stability and patience.”
While the Bank of Canada has been alone in the Group of Seven in signaling that its next move may be to raise interest rates, economists are anticipating Poloz won’t tighten policy until the end of next year at the earliest, in part to avoid a strengthening of the Canadian dollar that could undermine business confidence and exports.
“What you can take away from his comments is you’re seeing growth accelerate, and that’s a good reason to be bullish on the Canadian dollar,” Adam Button, a currency analyst at Forexlive.com in Montreal, said of Poloz’s remarks in a telephone interview. “The idea before he came in was that he would be a dove, but if anything we’re seeing the opposite.”
Wholesale-sales receipts rose 0.2 percent to C$49 billion ($48 billion), Statistics Canada said in Ottawa, after a revised 0.1 percent gain in March. Economists surveyed by Bloomberg News forecast sales would climb 0.3 percent, the median of 15 responses, from an initially reported 0.3 percent gain in March.
The Canadian dollar has declined 1.3 percent in the past month among 10 developed-nation currencies tracked by the Bloomberg Correlation Weighted Indexes. The dollars of fellow commodities exporters Australian and New Zealand lead decliners, down 7 percent and 5 percent. The U.S. dollar dropped 1 percent. The yen added 5.7 percent to lead gainers.
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