Canada Dollar Reaches Almost 3-Month Low After Economy Shrinks

By Allison Bennett - Nov 1, 2012 5:11 AM GMT+0800

 

Canada’s dollar reached almost a 12- week low against its U.S. counterpart after the nation’s gross domestic product unexpectedly shrank for the first time in six months, spurring bets interest rates won’t be raised soon.
The currency traded below parity with the U.S. dollar for a third day after Statistics Canada said output fell 0.1 percent to an annualized C$1.29 trillion ($1.29 trillion) in August from July, compared with a 0.2 percent increase forecast in a Bloomberg survey. A report on Nov. 2 is forecast to show hiring slowed this month. The currency pared losses as crude oil, Canada’s biggest export, increased and Canadian stocks rose.

“The weaker-than-expected GDP print has the market questioning the Bank of Canada’s hawkish bias,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “Any slowing in hiring in Canada is liable to push the loonie further below parity against the greenback.”
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, little changed at 99.94 cents per U.S. dollar at 5 p.m. in Toronto after reaching C$1.0014 earlier. It touched C$1.0019 yesterday, the weakest since Aug. 6. One Canadian dollar purchases $1.0006.
The loonie lost 1.6 percent this month against the greenback, paring a gain for the year to 2.1 percent.

Bonds Rise

Government bonds rose, pushing the yield on Canada’s two- year benchmark down three basis points, or 0.03 percentage point, to 1.07 percent. It touched 1.06 percent, the lowest level since Oct. 4. The price of the 1 percent security due in November 2014 increased 5 cents to C$99.86.
Crude oil for December delivery increased as much as 1.8 percent to $87.19 a barrel in New York before trading at $86.13, up 0.5 percent. The Standard & Poor’s TSX Composite Index gained 0.4 percent.
The Canadian dollar’s weakening through the “key resistance level of 99.50 cents to C$1” means the U.S. currency may continue to strengthen, Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York, wrote to clients today. Resistance is an area on a chart where orders may be clustered.
Canada’s currency was net sold today, according to Bank of New York Mellon client flow data. Over the past five days it has been seen net-buying three times stronger than its weekly average over the past year, the data showed. BNY Mellon is the world’s largest custodial bank with more than $26 trillion under administration.

Economy Restrained

The world’s 11th-largest economy is being restrained by an inconsistent global recovery with risks posed by Europe’s debt crisis and the prospect of automatic tax increases and spending cuts in the U.S. next year. Finance Minister Jim Flaherty cut growth and revenue forecasts Oct. 29, citing lower commodity prices, while Bank of Canada Governor Mark Carney said last week the need to raise interest rates is “less imminent.”
Carney had said since April that the strength of the nation’s economy might require borrowing costs to be increased.

“The report does move the tracking for the third quarter to what the bank had forecast, so it doesn’t necessarily go against what Governor Carney has said,” said Greg Moore, currency strategist at Toronto-Dominion Bank (TD) in Toronto. “The general message will likely remain that the move for interest rates is up and won’t go down.”
The central bank has held the benchmark rate at 1 percent since September 2010 to support the economy.

Rate Bets

The yield on March 2013 bankers’ acceptances, a measure of interest-rate expectations, slipped to 1.25 percent, from 1.26 percent yesterday. It touched 1.22 percent on Oct. 15, the lowest level since July. So-called Bax contracts have settled an average of about 20 basis points above the central bank’s target rate since 1992, data compiled by Bloomberg show.
The loonie will strengthen to 98 cents to the greenback by year-end, according to the median of 40 forecasts compiled by Bloomberg.
Canadian output increased 1.2 percent in August from a year earlier, the slowest pace since January 2010, Statistics Canada data showed today. Economists in a Bloomberg survey forecast a 1.7 percent expansion.
Job growth in the nation slowed in October, economists in a Bloomberg News survey forecast before the statistics agency reports the data this week. Employers added 10,000 jobs, economists projected, compared with 52,100 in September.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net