Bloomberg News

Canada Dollar Falls on Building Permits Decline, U.S. Shutdown

October 07, 2013

The Canadian dollar fell against the greenback, snapping two days of gains, as building permits dropped in August from a record high and the U.S. government shutdown entered a second week.

The currency was weaker against most of its 16 major peers as crude oil, the nation’s largest export, declined and stocks fell. U.S. Speaker John Boehner said the House can’t pass an increase to the U.S. debt ceiling without packaging it with other provisions -- something President Barack Obama has labeled a nonstarter, adding to concern growth is slowing in Canada’s largest trading partner.

“It’s more a function of the data that came out this morning,” David Tulk, chief Canada macro strategist at TD Securities, a unit of Toronto-Dominion Bank, said by phone from Toronto. “In the vacuum of data from a North American perspective, what is released typically on the Canadian side of the border may have more of an outsized impact on the currency.”

Some U.S. economic reports haven’t been released because of the government shutdown.

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, declined 0.2 percent to C$1.0313 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 96.97 U.S. cents.

Oil Trade

West Texas Intermediate crude dropped 0.7 percent to $103.16 a barrel in New York. The discount for Canada’s benchmark Western Canada Select faced to West Texas Intermediate, its U.S. peer, was at $32.75 a barrel, after reaching $34.50 on Oct. 4, the most since Jan. 24.

The value of municipal permits dropped 21.2 percent to C$6.34 billion ($6.14 billion), following a revised 21.4 percent jump in July, Statistics Canada said in Ottawa. Economists forecast a 7.4 percent fall according to the median of eight responses to a Bloomberg survey.

“The fact that the U.S. government is still shut down is starting to concern markets a little bit more now that we’re a week into it,” David Bradley, director of foreign-exchange trading at Scotia Capital Inc., a unit of Bank of Nova Scotia (BNS), said by phone from Toronto. “We just had Canadian data, which was quite a bit weaker than expected. That’s helped this last little push.”

The nation’s government bonds rose, pushing yields on the benchmark 10-year security down one basis point, or 0.01 percentage point, to 2.57 percent. The price of the 1.5 percent security due in June 2023 increased 10 cents to C$90.95.

Debt Sale

The Bank of Canada will sell C$2.7 billion ($2.6 billion) of three-year notes on Oct. 9. The securities mature in February 2017.

Canada is having second thoughts about selling ultra-long bonds as investors including Pacific Investment Management Co. prepare for the end of four years of unprecedented monetary stimulus by the world’s central banks.

As part of their annual consultations with bond dealers, the Finance Ministry and Bank of Canada questioned the wisdom of selling debt maturing in 40 years or more, asking how the banks would “characterize demand for long-term bonds since yields began rising in May.” Finance Minister Jim Flaherty unveiled the ultra-long plan at his March budget, when 30-year government yielded 2.5 percent, compared with 3.1 percent now.

“It’s scaring them somewhat, which has likely eroded their appetite to a degree,” said Ian Pollick, senior fixed-income strategist in Toronto at the capital markets unit of Royal Bank of Canada, one of the central bank’s primary dealers. “It’s unlikely they will shelve the idea altogether, though more reluctance is likely in the decision process.”

The stalemate between the White House and House Republicans showed little sign of thawing just 10 days from when Treasury Secretary Jacob J. Lew told lawmakers the U.S. will exhaust measures to avoid breaching the debt ceiling. The House and Senate weren’t in session yesterday and there were no meetings planned between the two sides.

The Canadian dollar has lost 2 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar gained 2.3 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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


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