Canadian dollar drops below parity as appetite for risk declines

Canada’s dollar dropped below parity with its U.S. counterpart for the first time since August as investors’ risk appetite declined.

The currency fell for a fifth day with U.S. equity trading canceled as Hurricane Sandy headed toward the East Coast. Moody’s Investors Service warned Oct. 26 it may cut the ratings of six Canadian-based lenders.

“The Canadian dollar is the marquee currency today, breaking parity,” Adam Button, an analyst at in Montreal, said in a phone interview. “We’re continuing to see a fairly strong risk-off tone while many market participants were expecting an extremely quiet session because of the closures in New York. Canadian banks were put on review for a downgrade, and the market didn’t get to respond last week, and it is today.”

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, weakened 0.3 percent to 99.99 cents per U.S. dollar at 11:38 a.m. in Toronto, after touching C$1.0004. It’s the longest string of losses since May. The Canadian dollar last closed at parity on Aug. 6. One Canadian dollar buys $1.001.

The government will post a surplus of C$3.2 billion ($3.2 billion) in the 2015-16 fiscal year following combined deficits of C$36.3 over the next three years, Parliamentary Budget Officer Kevin Page said in a report posted on his office’s website today.

“The forecast from the Canadian budget office is another headwind for the loonie,” Button said. “When you see that kind of forecast, it really takes the shine off the Canadian dollar. It certainly calls into question any ideas about a rate hike in 2013.”

Rate Speculation

Bank of Canada Governor Mark Carney said last week the need for higher interest rates has become “less imminent,” a day after strengthening the case for a removal of monetary stimulus.

Carney’s emphasis on high debt levels was highlighted when Moody’s placed Bank of Nova Scotia, Toronto-Dominion Bank and four other lenders on review for possible downgrade, citing the heightened risk to Canada’s economy from rising consumer debt and real estate prices.

Canadian bank debt dropped 0.04 percent this month, the only finance bonds to lose money among those from 27 countries tracked by a Bank of America Merrill Lynch index. The average gain was 0.6 percent, the index shows.

Bloomberg News

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