Canadian dollar falls to four-week low amid speculation on Fed

Canada’s dollar (FOREX:CADUSD) slid to the lowest in almost four weeks as commodities fell for a fourth day and stocks sank amid bets the Federal Reserve may slow quantitative- easing stimulus in the nation’s biggest trade partner.

The currency extended losses, falling against most major peers, after a report showed building permits dropped in June for the first time this year. The discount applied to Canadian heavy oil, the nation’s biggest export, was almost the biggest in three months. Canada’s payrolls grew by 10,000 jobs last month after losing positions in June, data due Aug. 9 are forecast to show.

“For dollar-Canada, the bigger driver at the moment is QE- tapering expectations,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank in Toronto. “Our expectations are in September. The Canadian employment report is the biggest thing on the calendar and could drive the Canadian dollar in either direction.”

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4% to C$1.0421 per U.S. dollar at 4:02 p.m. in Toronto. It touched C$1.0445, the weakest level since July 11. One Canadian dollar buys 95.96 U.S. cents.

Government bonds rose, pushing yields on benchmark 10-year debt down two basis points, or 0.02 percentage point, to 2.50%. The yields reached 2.60% on Aug. 2, the highest level since August 2011. The price of the 1.5% securities due in June 2023 gained 15 cents to C$91.38.

Bond Auction

The Bank of Canada auctioned C$2.7 billion ($2.6 billion) of three-year bonds today, with an average yield of 1.373%. The 1% securities due in August 2016 drew C$7.1 billion in bids for a bid-to-cover ratio of 2.64. The average ratio at the past five sales of the debt was 2.76.

The Canadian currency fell 1.1% last week, the most since June, amid concern the Fed will start slowing monetary stimulus as soon as next month as the U.S. economy strengthens. The American central bank buys $85 billion of Treasuries and mortgage bonds each month in a strategy designed to put downward pressure on borrowing costs.

Fed Bank of Cleveland President Sandra Pianalto said today a tapering of the stimulus may be warranted if the labor market continues to strengthen. She spoke at a conference in Cleveland.

Fed Bank of Chicago President Charles Evans, among the strongest proponents of the unprecedented efforts to provide stimulus to the U.S. economy, said yesterday he “would clearly not” rule out a decision to start curbing monthly bond purchases next month. He spoke to reporters in Chicago.

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