Canadian dollar drops as U.S. lawmakers seek budget compromise

The Canadian dollar declined against its U.S. counterpart amid signs lawmakers may find a compromise to avert the so-called fiscal cliff, bolstering prospects for the American economy.

Canada’s currency rallied against the U.S. dollar by the most in five days yesterday after the federal statistics agency said foreign investors had their fourth straight month of net investment in the nation’s securities. Further gains for the so-called loonie may be limited as a technical measure shows it may have rallied too much, too fast. The currency trailed the majority of its 16 most-traded peers today along with the fellow commodity-related dollars of Australia and New Zealand as oil pared earlier gains.

“Anything relating to the fiscal cliff, any positive developments, are certainly going to help the U.S. dollar,” said Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, in a telephone interview from Toronto. He said currency flows have declined recently as market participants go on vacation.

The loonie fell 0.2 percent to 98.51 cents at 10:26 a.m. in Toronto. One Canadian dollar buys $1.0151. The loonie has gained 0.9 percent this month, paring it quarterly loss to 0.1 percent.

Canada’s dollar fell after the 14-day relative strength index versus the dollar touched 33 yesterday, approaching the level of 30 that indicates a currency may have strengthened too rapidly and is due for a reversal.

Going Long

Futures on crude oil, the nation’s largest export, rose 0.3 percent to $87.49 a barrel in New York after rising as much as 0.8 percent. The Standard & Poor’s Index of stocks gained 0.3 percent.

The loonie has lagged behind other majors amid “a lack of interest to add to what are already fairly aggressive long position in both the Canadian and Australian dollars,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by telephone from Toronto.

Futures traders have increased their bets that the loonie will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 62,533 on Dec. 11, compared with net longs of 57,071 a week earlier.

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