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Canada Dollar Drops to Two-Week Low on Fed Stimulus Speculation - (Bloomberg)

Posted by Chris Advincula on Aug 21, 2013 6:39:00 AM
By Ari Altstedter - Aug 20, 2013

The Canadian dollar fell to the lowest in almost two weeks as oil, the nation’s biggest export, slid amid bets the Federal Reserve will slow monetary stimulus that has fueled demand for riskier assets as soon as next month.

The currency sank versus most major counterparts as the central banks of Canada’s commodity-exporting peers, Australia and New Zealand, signaled steps may be taken to weaken their currencies. Canadian retail sales fell in June, data due Aug. 22 is forecast to show, following drops in employment and factory sales. The nation’s 10-year government bonds rose for the first time in seven days, pushing yields down from a two-year high.

“People are just sort of preparing for a tapering world,” said John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, by phone from Toronto. “People are just leaning toward recent data for the Canadian dollar. When push comes to shove, you can be comfortable selling it at the levels it’s at.”

The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated for a third day, losing 0.5 percent to C$1.0392 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0401, the weakest level since Aug. 8. One Canadian dollar buys 96.23 U.S. cents.

Canada’s currency closed weaker than its 50-day moving average for the first time since Aug. 7, a signal to some traders that there’s momentum for further losses. It will depreciate to C$1.05 by year-end, according to a Bloomberg survey of 62 economists and analysts

Bonds Climb

Benchmark 10-year government bonds gained for the first day since Aug. 9, pushing yields down six basis points, or 0.06 percentage point, to 2.68 percent. The yields touched 2.76 percent yesterday, the highest level since July 2011. The price of the 1.5 percent securities maturing in June 2023 increased 51 cents to C$89.93.

Futures on crude oil dropped as much as 2.4 percent, the biggest decline in two months, to $104.50 before paring losses to trade at $104.96.

Options traders became more bearish on the Canadian dollar. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, rose to 1.58 percent, the highest a closing basis since July 8. The 2013 average is 1.24. 

 

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