Canada Dollar Falls to 1-Month Low as Weak Data Damp Risk Demand

By Cordell Eddings and Joseph Ciolli - Oct 4, 2012 5:08 AM GMT+0800

Canada’s dollar fell to its lowest level in almost a month against its U.S. counterpart as a slump in Chinese non-manufacturing industrial growth offset a private report showing U.S. employers hired more workers than forecast.
The currency weakened for a second day before data Oct. 5 that economists project will show Canadian employers added fewer workers last month. Crude oil, the nation’s largest export, fell below $90 a barrel and euro-area services and manufacturing output contracted in September, damping demand for riskier assets.

“The story for the Canadian dollar has been one of weakness that has stretched to all commodity currencies as China has slowed and oil and other commodities drop,” said Greg Moore, currency strategist at Toronto-Dominion Bank, said in a phone interview. “The theme into the end of the year should continue to be one of slower global growth and that should keep pressure on risk currencies.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, depreciated 0.4 percent to 98.76 cents per U.S. dollar at 5 p.m. in Toronto. It touched 98.84, the weakest since Sept. 6. One Canadian dollar buys $1.0126.
Crude-oil futures dropped 4.2 percent to $87.99 a barrel in New York. The Standard & Poor’s 500 Index rose 0.4 percent.

Bonds Drop

Government bonds rose, pushing the yield on the 10-year government security down one basis point, or 0.01 percentage point, to 1.71 percent. The 2.75 security maturing in June 2022 added 4 cents to C$109.15.
The Bank of Canada will announce details tomorrow for a three-year note auction on Oct. 10.
Canadian issuers of junk loans are bypassing bank lenders by tapping U.S. hedge funds and institutional investors to cut costs for acquisitions, creating a market for the debt that may eventually translate across the border.

Garda World Security Co., Canada’s largest security company, is hosting a lender meeting today in New York to market $350 million of loans mostly for non-bank investors. Valeant Pharmaceuticals International Inc., Canada’s largest publicly traded drug-maker, sold $1 billion to non-bank investors on Sept. 28 as part of $2.75 billion of debt to back its buyout of Medicis Pharmaceutical Corp.

Rate Forecast

Overnight Index Swap implied probabilities show 99.8 percent of the market expects no change in the central bank’s benchmark rate at the Oct. 23 Bank of Canada meeting.
Governor Mark Carney on Sept. 5 held his key lending rate at 1 percent, where it’s been since September 2010, the longest unchanged period since the 1950s. Carney reiterated that an increase “may become appropriate” as domestic spending props up an economic recovery restrained by weak global demand for exports.

“The global backdrop is weak, and it’s hard to see where any extra stimulus is going to come from, which is a negative for the Canadian dollar,” said David Watt, chief economist at HSBC Bank Canada in Toronto. “With the economic climate still negative there is nothing to be gained for the Canadian central bank to remain hawkish with so many uncertainties ahead.”
The European Central Bank and the Bank of England are scheduled to issue policy statements tomorrow.
“All eyes will now be looking ahead to central bank releases tomorrow and Friday’s U.S. and Canadian employment data,” John Curran, a senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer, wrote in a note to clients.

Jobs Data

The 162,000 increase in U.S. employment for September followed a revised 189,000 jump in August, figures from Roseland, New Jersey-based ADP Employer Services showed today. The median forecast of 38 economists surveyed by Bloomberg projected a 140,000 advance.
Canadian employers added 10,000 jobs last month, compared with 34,300 the previous month, according to a Bloomberg News survey of 24 economists. The jobless rate is projected to hold at 7.3 percent.
China’s nonmanufacturing industries expanded at the weakest pace since at least March 2011 as the purchasing managers’ index fell to 53.7 in September from 56.3 in August. Readings above 50 indicate expansion.

Canada’s dollar has declined 1.4 percent during the past month against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 1.2 percent.
“Risk-related currencies are trending lower, and that has to have an influence on a currency like the Canadian dollar, which is highly correlated to risk,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a telephone interview.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net