Canada’s dollar fell for the second week as stocks were pummeled and oil, the nation’s largest export, declined to the lowest level since February, signaling less demand for risky assets.
The loonie, as the currency is nicknamed, fell versus 12 of its 16 most-traded counterparts this week on speculation slowing economic growth will weigh on demand for raw materials. Growth concern was tempered yesterday when reports showed Canadian jobs grew for a fourth straight month in July and employment increased in the U.S., the nation’s largest trading partner, more than forecast. Demand for Canadian government securities will be tested when the Bank of Canada auctions three-year debt on Aug. 10.
“Concern over the health of the U.S. economy is probably a very negative translation to the Canadian economy,” said Gregory Salvaggio, senior vice president of capital markets in Washington at the currency trader Tempus Consulting Inc. “On top of that, significant slippage in commodity prices all contribute to downward pressure on the loonie.
The Canadian currency fell 2.8 percent to 98.20 cents per U.S. dollar in Toronto from 95.52 on July 29. One Canadian dollar buys $1.0183. It touched 94.07 cents on July 26, the strongest since November 2007.
Haven Shift
Canada’s 10-year government bonds traded this week at the biggest discount to Treasuries this year. The yield on Canada’s benchmark 3.25 percent bond due June 2021 dropped to 2.50 percent Aug. 4, about 10 basis points higher than the equivalent-maturity U.S. security.
Yields on two-year government bonds fell as much as 45 basis points this week, the most since October 2008. The bonds closed at 1.07 percent, pushing the price of the 2 percent note due in August 2013 up 62 cents to C$101.81.
The loonie rebounded yesterday from its biggest drop in more than a year against its U.S. counterpart after the jobs reports. Canada added 7,100 jobs in July, while U.S. payrolls climbed by a more-than-forecast 117,000 workers after a 46,000 increase in June. Canada’s unemployment rate fell to 7.2 percent from 7.4 percent in May, while the U.S. jobless rate declined to 9.1 percent from 9.2 percent.
Jobs Data
The Canadian jobs gain was less than the 15,000 median of estimates in a Bloomberg News survey of 27 economists.
“It was slightly weaker than expected on the headline,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “But some of the details highlight that some of the losses were in education, which is a seasonal adjustment factor.”
The MSCI World Index, a measure of stocks in developed nations, tumbled 8.6 percent this week. Oil touched the lowest since November 2010 and erased all of this year’s gains. Crude for September delivery declined 9.5 percent to $86.58 a barrel in electronic trading in New York after reaching $82.87. It plummeted 5.8 percent Aug. 4.
The Canadian dollar fell Aug. 4 after the Bank of Japan followed its Swiss counterpart in easing monetary policy, with Finance Minister Yoshihiko Noda saying the Japanese action was unilateral following joint yen sales by Group of Seven nations in March.
ECB Moves
European Central Bank President Jean-Claude Trichet said Aug. 4 the ECB has resumed bond purchases and will offer banks more cash to stop the region’s Canada Dollar Drops Most in Year on Global Economic Slowing 9 debt crisis from engulfing Italy and Spain and hurting the economy.
President Barack Obama signed a bill Aug. 2 that raised the nation’s debt ceiling and lowers federal spending, fueling concern budget cuts will weigh on the U.S. economy.
The yield on the December 2011 bankers’ acceptances, a barometer of short-term interest rate expectations, fell to 1.16 percent Aug. 4, the lowest since the contract started trading in December 2008, as traders slashed bets the central bank would raise rates amid slowing global growth.
“There’s blood in the streets,” said David Love, a trader of interest-rate derivatives at the brokerage Le Groupe Jitney Inc. in Montreal, via e-mail. “The contracts are pricing no move to a small chance of an ease, but this has more to do with panic than with rational pricing.”
The Bank of Canada has held the benchmark overnight rate at 1 percent since September after raising it three times last year. Governor Mark Carney said July 20 the central bank won’t be “mechanical” in raising rates during the recovery, because of the risks posed by a strong currency and slow U.S. growth. The central bank published a note that day that said interest rates can remain below their long-run average even after the economy recovers, if economic “headwinds” are slowing growth.
Canada’s dollar has declined 4.6 percent this year versus the currencies of nine other developed nations in the second- worst performance, according to Bloomberg Correlation-Weighted Currency Indexes. The greenback has fallen 6.3 percent and the yen has lost 2.7 percent of its value.
