Canadian Dollar Declines as Economic Data Underpin Weak-Recovery Case
"Currency"08/30/2010
By Chris Fournier and Mary Childs
Bloomberg News
Aug 30, 2010
Canada’s dollar slid from a one-week high versus its U.S. counterpart as weaker-than-forecast economic data added to evidence the nation’s recovery slowed.
The Canadian currency, nicknamed the loonie, headed for a 2.8 percent drop against the greenback for August, the worst monthly performance since June 2009. Data showed factory product prices rose less than expected and the current account balance widened more than forecast. Global stocks and crude oil, two of the currency’s primary drivers, fell.
“Weaker-than-expected producer prices along with a wider current account deficit set up an unfavorable macro setting for the currency today,” Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital, a unit of Canada’s third-largest bank, said in an e-mail.
The Canadian currency dropped 0.8 percent to C$1.0594 per U.S. dollar at 4:56 p.m. in Toronto, compared with C$1.0508 on Aug. 27. It earlier touched C$1.0473, the strongest level since Aug. 23. One Canadian dollar buys 94.39 U.S. cents.
The Standard & Poor’s 500 index tumbled 1.5 percent, and crude oil for October delivery decreased 1.4 percent to $74.13 a barrel in New York.
Canada’s dollar weakened against all but three of its 16 most-traded counterparts: the Swedish krona, Mexico’s peso and the Norwegian krone. It fell 1.6 percent versus the yen.
Bonds Gain
Government bonds rose. The yield on the benchmark 10-year note fell 9 basis points, or 0.09 percentage point, to 2.78 percent, approaching the 17 month low of 2.77 percent set on Aug. 25. The Bank of Canada will auction C$1.4 billion ($1.3 billion) of 30-year bonds on Sept. 1.
The loonie erased gains after Statistics Canada reported the industrial product price index gained 0.1 percent in July, compared with the median estimate in a Bloomberg survey for a rise of 0.4 percent. Primary metal prices gained 1.4 percent and petroleum and coal prices fell 0.9 percent.
Payments sent abroad exceeded receipts from outside Canada by C$11 billion in the April-June period, the seventh straight quarterly deficit, statistics agency data showed. Economists predicted a C$10.7 billion second-quarter deficit, according to a Bloomberg survey.
Bank of Canada policy makers raised the key interest rate by a quarter-percentage point to 0.75 percent on July 20, the second increase in two months. They next meet Sept. 8, followed by two more meetings this year, in October and December.