Monday, April 15, 2013

Canada Dollar Falls on U.S. Retail Sales Drop, European Concern

The Canadian dollar fell against its U.S. counterpart for the first time this week as U.S retail sales dropped the most in nine months and on reports that steps to strengthen Europe’s financial system were faltering.


The currency pared a weekly gain against the greenback as retail sales in the U.S., Canada’s largest trading partner, fell 0.4 percent in March after a 1.1 percent gain the month before.

Cyprus was forced to deny it required additional European aid and Germany’s Handelsblatt newspaper reported a discussion on direct bank recapitalization from Europe’s bailout fund was “going in circles.”

Futures bets that Canada’s currency would fall against its U.S. counterpart outnumbered wagers it would rise by the most in six years, data today showed.

“One of the reasons people bought Canada was the expectation the U.S. would recover,” said Sebastien Galy, a foreign-exchange strategist at Societe Generale SA, by phone from New York.

“The business cycle in the U.S. is showing increasingly some signs of softness which might last a while.” The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, fell 0.3 percent to C$1.0136 per U.S. dollar at 5 p.m. in Toronto.

The currency gained 0.4 percent this week. One loonie buys 98.66 U.S. cents. The Canadian dollar should fall to C$1.02 per U.S dollar, Galy said, before rising again as the U.S. recovery picks up later in the year.

Market Mix

“The Canadian story was a lot of hopes, and I think that should calm down, we should settle in a range,” Galy said.

Hedge funds and other large speculators increased their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 71,133 on April 9, the most since March 16, 2007, and compared with net shorts of 64,544 a week earlier. Canada’s 10-year government bonds rose, with yields falling five basis points or 0.05 percentage point to 1.74 percent.

The 1.5 percent security maturing in June 2023 rose 42 cents to C$97.82. Futures of crude oil, Canada’s largest export, fell 2.9 percent to $90.93 per barrel, touching a one-month low.

The Standard & Poor’s 500 Index of U.S. stocks lost 0.3 percent. Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart has fallen 27 basis points to 6.07 percent since April 8, when it reached its highest point in three weeks.

Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Weaker Tone

“It’s just a risk-off scenario because of continuing problems in Europe that’s caused the Canadian dollar to sell off,” said David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Bank of Nova Scotia. (BNS)

The Bank of Canada is forecast to leave its benchmark interest rate at 1 percent at its policy meeting next week, according to all 23 economists in a Bloomberg survey.

“The Canadian economic landscape remains frustrating as the expected rotation from consumer spending/housing/government spending towards external trade/capital spending is sputtering,” Mark Chandler, head of fixed-income strategy at Royal Bank of Canada, wrote in a research note.

“Yet another downgrade to growth is expected from the BOC next week.”

Central Bank

The central bank’s March 6 policy statement called for the economy to “pick up through 2013” on its way to 2 percent annual growth, while Governor Mark Carney reiterated the central bank’s eventual next move will probably be an increase to the 1 percent benchmark target rate.Policy makers meet on April 17.

The Canadian dollar has gained 0.1 percent in the last month against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index, trailing the currencies of its commodity exporting peers of Australia and New Zealand, which have gained 0.7 percent and 3 percent respectively. The U.S. dollar lost 1 percent and the euro fell 0.5 percent.

bloomberg.com

No comments:

Post a Comment