Canadian dollar falls as risk aversion rises

Synergy Debt Group

Canadian dollar falls as risk aversion rises
Bloomberg
Canada’s currency had its biggest drop in six weeks against its U.S. counterpart as speculation Europe is struggling to contain its sovereign-debt crisis damped appetite for higher-yielding assets.

Canada’s dollar reached its weakest levels of the month as the absence of decisive steps to end the euro-zone crisis at a summit the week earlier weighed on global stock and commodities markets. Natural resources such as oil and minerals account for about 50 percent of Canada’s domestic output. Crude oil futures reached a six-week low in New York.

“It keeps putting the focus on the negative; these countries aren’t growing, their debt burdens are unsustainable,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The fact that oil is dropping rapidly and is now below $95 a barrel is part of Canadian dollar weakness.”

The loonie, as the currency is known, declined 2.1 percent to C$1.0383, the largest five-day decline since the week ended Nov. 4. The currency touched the lowest this month on Dec. 14, reaching C$1.0424. One Canadian dollar buys 96.31 U.S. cents.

Crude oil futures fell 6.1 percent to $93.78 a barrel in New York, its biggest weekly loss since the period ending Sept. 23. The nation’s biggest export reached $92.52 yesterday, the weakest since Nov. 3.

‘Tough Few Days’

“Commodities are taking it on the chin,” Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets, by phone from Toronto said Dec. 14. “Most of the fallout in Canada has been from that. It’s been a tough few days for gold, in particular.”

Canada’s benchmark 10-year bonds rose, pushing the yield down by 20 basis points, or 0.20 percentage point, to 1.86 percent. The yield fell to as low as 1.837 percent yesterday, a record. The price of the 3.25 percent securities maturing in June 2021 increased C$1.78 to C$111.95.

Foreign investors bought a net C$2.03 billion ($1.96 billion) of Canadian securities in October, led by bonds, Statistics Canada figures showed yesterday. Economists predicted a C$7.25 billion net investment, according to the median of four estimates gathered by Bloomberg News.

The central bank sold C$3 billion of bonds due in February 2015 at an average yield of 1.023 percent and a bid-to-cover ratio of 2.53 on Dec. 14. The previous three-year auction in November drew an average yield of 1.219 percent, a ratio of 2.36 times the bids for the amount for sale.

Annual Decline

Canada’s net international debt fell for the first time in 10 quarters during the July-September period as a decline in the loonie boosted the value of assets held abroad, Statistics Canada said this week. The book value of the country’s shortfall fell by C$31.8 billion to C$189.5 billion.

The currency has fallen 4 percent against its U.S. counterpart this year. It strengthened to 94.43 cents per U.S. dollar, a more than three-year high, in July and weakened to C$1.0658 in October.

Existing home sales in November rose at their slowest pace in three months, the Canadian Real Estate Association said and Canadian factory sales fell in October for the first time in four months on fewer shipments by oil refiners and food manufacturers, while new orders declined.

The loonie has lost 3.1 percent this year, while the dollar has appreciated 1.7 percent and the 17-nation euro has lost 0.8 percent, according to Bloomberg Correlation-Weighted Indexes, a gauge of 10 developed-nation currencies.

“If the U.S. economy does better than expected and continues the trend we’ve seen over the last couple of weeks of economic surprises, the connected economies like Canada will have the tendency to outperform,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London said on Dec. 13.

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