The Canadian dollar fell against its so-called commodity-currency counterpart in Australia as the U.S. government began its first partial shutdown in 17 years, imperiling growth in Canada’s biggest trading partner.
The currency, called the loonie, weakened against the majority of its 16 most-traded peers as debate looms on raising the U.S. debt ceiling within three weeks. Australia’s dollar climbed after the nation’s Reserve Bank left borrowing costs unchanged today. The U.S. dollar fell versus most major counterparts. A partial shutdown of the federal government would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. (IHS:US)
“We’ve got uncertainty whether or not Canadian exports to the U.S. are going to rebound sharply over the next several months with this uncertainty over the government shutdown and the U.S. economic outlook,” David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, said in a phone interview. “It makes sense the Canadian dollar would lag its commodity peers during an episode such as this. It will behave more like the U.S. dollar because of the close ties.”
The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, weakened 1 percent to 97.02 cents per Australian dollar at 5 p.m. in Toronto.
Canada’s currency depreciated 0.1 percent to C$1.0322 per U.S. dollar. One Canadian dollar buys 96.88 U.S. cents.
Canada’s benchmark 10-year government bond fell, pushing the yield up two basis points to 2.56 percent. The price of the 1.5 percent security maturing in June 2023 slipped 14 cents to C$90.97.
Implied volatility for one-year options on the Canadian dollar versus its U.S. counterpart rose to 7.1 percent, the highest on a closing basis since Sept. 16. Implied volatility is used to set option prices and gauge the expected pace of currency swings. The average for this year is 7.39 percent.
Options traders touched the most bearish level on the Canadian dollar versus its U.S. peer in three weeks. The three-month so-called 25 delta risk-reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian peer versus contracts to sell, reached 1.375 percent, matching yesterday’s high, the most since Sept. 6.
The Canadian dollar lost 0.9 percent in the past month against nine developed-market peers tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar dropped 3.2 percent, while the Australian currency gained 2.1 percent.
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